Who doesn’t love dividends? Dividend stocks can help hedge your portfolio returns during the market crash. They are often less volatile than growth stocks and provide you with returns through dividend yields. This is because dividend stocks enjoy regular and predictable cash flows.
Companies with infrastructure like telecom, pipeline, real estate, and utilities tend to pay consistent dividends. They are essential and enjoy a stable demand that brings long-term predictable cash flows. Here I have identified five dividend stocks to earn passive income from your portfolio.
Dividend Yield:
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Sunoco LP – 7.08%
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Enbridge – 6.28%
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Algonquin Power & Utilities – 4.83%
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AbbVie – 3.93%
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Toronto Dominion Bank – 3.3%
Sunoco LP
Sunoco (NYSE: SUN) is in the business of distribution. It stores gasoline and distributes it to retail customers through gas stations and commercial customers through trucks. The company currently serves 33 states of the U.S. and could expand to the remaining 17. The stock has maintained a stable dividend per share since 2017. But now, it faces a threat from the growing adoption of electric vehicles (EVs).
In the best and worst-case scenarios, EVs could either account for over 70% or only 5% of vehicle sales by 2040. But in either case, gasoline cars will exist in decent quantity. There won’t be a remarkable shift in gasoline demand for at least a decade. This means you can continue to enjoy steady dividends.
2022 is a strong year for oil and gas companies as travel demand recovers in the post-pandemic world. Sunoco expects total fuel volumes to increase from 7.5 billion gallons to 7.7-8.1 billion gallons. The stock has already surged 12% year to date and has the potential to rise further as economists expect oil prices to increase. This may be a good time to buy the stock and lock in a high dividend yield and strong capital appreciation.
Enbridge
Enbridge (NYSE: ENB) owns and operates North America’s largest oil and gas pipeline infrastructure. It operates on the toll collection business model. Enbridge gets paid for transmitting volumes of oil and natural gas through pipelines. The company keeps building new pipelines to increase its cash flow and pay a higher dividend.
It has been paying a quarterly dividend for over three decades, of which it increased dividend at a 10% CAGR for the last 26 years. Even though the stock is trading closer to its 52-week high, it has a 6.35% dividend yield, which is higher than most oil and gas companies. In the last two years, its dividend growth rate slowed to 3% as the pandemic reduced oil supply.
But it has several projects coming online by 2023 that could boost its cash flow and dividends. I expect its dividend growth rate to slow as it becomes increasingly difficult to build new pipelines due to environmental concerns. But that would be offset by higher toll fees.
Algonquin Power & Utilities
Algonquin Power & Utilities Corp (NYSE: AQN) generates, distributes, and transmits renewable electricity, natural gas, and water to Canada, the United States, Chile, and Bermuda. The company enjoys strong support from the governments promoting green energy. It earns stable cash flows from utility bills and deploys new projects to boost cash flow. The surge in cash flow has led to a 10-year dividend CAGR of 9.5%.
Algonquin Power stock dipped 20.6% in the last year. This is an attractive price to buy the stock and lock in a 4.75% dividend yield as the company prepares to buy Kentucky Power for US$2.85 billion. The acquisition will increase its customer base by 19%. That will increase the mix of the regulated business mix to 80% and bring stable cash flows.
AbbVie
AbbVie (NYSE: ABBV) is a good choice for dividend seekers as it enjoys strong cash flows thanks to its two prescription drugs Botox and Humira. These are some of the world’s top-selling drugs. The cash flow from their sales helped the company increase its dividends at a compounded annual growth rate (CAGR) of 18% in the last five years. Not only did the stock accelerate its dividend growth but also gave a capital appreciation of 116% in these five years.
The stock is currently trading near its all-time high, giving a dividend yield of 3.95% (based on the stock price at the time of writing). While AbbVie enjoyed a great past, its future is slightly challenging as Humira, which contributed 35% to AbbVie’s fourth-quarter revenue, loses its patent protection next year. This will give generic drug companies the freedom to copy the drug and sell it in the open market.
While this challenge lingers, AbbVie has a large number of drugs in its pipeline and is acquiring more drugs to find a replacement for Humira. If it succeeds in getting a new drug breakthrough, the stock could surge to new heights and bolster its dividend growth.
Toronto-Dominion Bank
TD Bank (TSE: TD) is among Canada’s Big Six Banks. It has divided its operations into three segments: Canadian Retail, U.S. Retail, and Wholesale Banking. Toronto-Dominion Bank also has operations in the United States.
During the pandemic, TD Bank stock surged as the inflated stock market boosted the bank’s valuation. In 2022, the U.S. Federal Reserve has hinted at interest rates hikes. This means TD Bank could charge higher interest on loans and also attract more investments in bank deposits.
TD Bank increased its dividends at a 12% CAGR in the last five years, and its latest quarterly dividend by 12.65% sequentially. Although the stock surged 8.5% year to date, it could continue its growth as investors search for save haven bids.
Final Takeaway
The above five stocks are at a sweet spot in terms of dividend growth. It is a ripe time to lock in a high dividend yield and start earning passive income in this high inflation environment.
Disclosure: The author holds no position in Sunoco LP, Enbridge Inc, Algonquin Power & Utilities Corp, AbbVie, or Toronto-Dominion Bank. Freedom Stocks has a disclosure policy.
