Stock market sell-offs can be challenging times for investors. It's never fun to see your portfolio's value plunge suddenly. However, with challenges can come opportunities.
A silver lining of stock market sell-offs is that dividend yields move in the opposite direction as stock prices. Because of that, they often provide the opportunity to lock in even more lucrative income streams from some top dividend stocks. Dominion Energy(NYSE: D) and Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) stand out as great dividend stocks to buy during sell-offs because a big decline would increase their already supercharged yields.
Striving for stability
Dominion Energy currently offers a dividend yield approaching 5%. That's well above average, considering that the S&P 500's dividend yield is less than 1.5%.
The utility plans to maintain its current payment rate for the next several years. It's in the process of selling three natural gas utilities so that it can recycle that capital to grow its electric utility operations. It's investing $43 billion through 2029 on a variety of projects, including building clean power generation like solar projects and offshore wind, while also investing in expanding its electricity transmission and distribution infrastructure. These investments should grow Dominion's earnings per share at a 5% to 7% annual rate.
Dominion plans to retain its growing earnings to support its continued growth, which will also make its dividend more sustainable over the long term by steadily lowering its payout ratio. Once the company reaches its targeted level in the 60% range, it plans to resume dividend growth.
With a 5% yield and earnings growing by more than 5%, Dominion already has the power to produce double-digit annualized total returns in the coming years. However, a sell-off would enable investors to potentially buy shares at a lower valuation and higher yield, which could supercharge their returns in the subsequent recovery.
Steady growth ahead
Brookfield Infrastructure's dividend currently yields more than 4%. The company plans to grow that payout by 5% to 9% annually in the coming years.
Several factors power that view. The company gets 90% of its revenue from regulated rate structures or long-term contracts, with 85% either indexed to or protected from inflation. With inflation continuously rising, Brookfield expects its funds from operations (FFO) per share to increase by 3% to 4% annually from inflation-driven rate increases alone.
Meanwhile, it expects volume growth as the global economy expands to add another 1%-2% to its bottom line each year. In addition, Brookfield is investing heavily in capital projects across its global infrastructure platforms, which should add another 2% to 3% to its FFO per share each year.
That trio of organic growth drivers alone could power its dividend growth plan. However, Brookfield expects its active capital recycling strategy to boost its FFO growth rate intothe double digits. The company routinely sells mature assets and uses the cash to fund accretive acquisitions.
Add its high-yielding dividend to its supercharged growth rate, and Brookfield could easily generate total annual returns in the mid-teens. Meanwhile, a sell-off could enable investors to buy shares even cheaper and lock in a higher yield and greater upside potential from a future recovery.
Capitalizing on a sell-off could boost your income and return potential
Dominion and Brookfield Infrastructure already offer compelling total return potential, powered by their high-yielding dividends and visible earnings growth profiles. However, a sell-off could provide the opportunity to buy these dividend stocks at lower prices, enabling you to lock in an even more compelling yield. That higher income stream would boost your total return. On top of that, you'd have even more upside potential as shares recover from their decline.
Because of that, both of these are great stocks to put on your sell-off watch list now so that you're ready to pounce the next time the market unexpectedly drops.
Should you invest $1,000 in Dominion Energy right now?
Before you buy stock in Dominion Energy, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dominion Energy wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $763,374!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 12, 2024
Matt DiLallo has positions in Brookfield Infrastructure Corporation and Brookfield Infrastructure Partners. The Motley Fool recommends Brookfield Infrastructure Partners and Dominion Energy. The Motley Fool has a disclosure policy.
