It’s been a tough year for dividend investors. Reliable payers like Ford and Boeing suspended their dividends as the coronavirus pandemic upended global markets. During this time, the S&P500 rebounded from its March sell-off, so most of the double-digit returns in early April are a thing of the past.
But do not despair! Dividend investors can always find good candidates for their money. If you like dividends, here are three stocks you should like.
Atlantica Sustainable Infrastructure: a big return
Atlantica Sustainable Infrastructure (AY 0.06% ) was once known as Atlantica Yield, and for good reason. This renewable energy company is part of a class of investments known as renewable yieldcos. Similar to real estate investment trusts (REITs), revolving yield companies pay out the vast majority of their cash flow as dividends to shareholders. As a result, Atlantica is currently yielding around 5.3%.
Even better for dividend investors, Atlantica payment seems relatively secure. It makes its money by operating a global portfolio of renewable energy assets, including solar farms in Spain, wind farms in South America and water desalination plants in Algeria.
Not only are Atlantica’s assets geographically diverse, but all are also operated under long-term fixed rate contracts. The earliest expiration date for an Atlantica contract is not until 2032, and most will not expire until 2036 or later. This creates a very secure income stream to fund its dividend. And with the stock price still not hitting its pre-crash peak, Atlantica looks like a good buy now.
NextEra Energy: a growing transfer
As the largest publicly traded utility in North America and one of the largest energy companies in the world by market capitalization, NextEra Energy (BORN -0.20% ) might not seem like a candidate for rapid growth. But many trends are working in its favor, which should benefit dividend investors.
NextEra owns two electric utilities in Florida, Gulf Power and Florida Power & Light. Between the two, it currently serves around 5.5 million customer accounts. But Florida’s ever-growing population presents a great opportunity for NextEra to grow. Additionally, with annual temperatures continuing to rise, these Florida customers will increasingly need electricity from NextEra to power their air conditioners.
The company does three things with the steady stream of cash it generates from its utility customers in Florida: it maintains its infrastructure (of course), it funds new renewable energy projects across the country, and it pays a fast-growing dividend to investors. That payout currently only earns around 1.8%, in part because NextEra’s share price continues to grow faster than its dividend can keep up. In fact, NextEra’s stock price has nearly tripled in the past five years.
Management expect this to continuepredicting earnings growth of between 6% and 8% through 2023 and double-digit dividend growth through 2022. Investors will want to get on board.
Johnson & Johnson: a pillar
With a payout that has increased every year for the past 57 years, Johnson & Johnson (JNJ 0.18% ) is one of the few companies to have exceeded Dividend Aristocrat Status become a dividend king. Even better, the company has managed to maintain an above-average yield, currently at 2.8%.
Johnson & Johnson’s status as a top dividend-paying stock is nothing new. What is new is the company’s effort to developing a coronavirus vaccine. It currently has a candidate in Phase 3 clinical trials and could produce 1 billion doses of the vaccine in 2021 alone, subject to regulatory approval.
Unlike some other coronavirus vaccine candidates, Johnson & Johnson is not relying on a single product. The company has a strong healthcare portfolio and more than $80 billion in annual sales. A recent drop in its stock price looks like a buying opportunity for dividend investors.
Don’t sweat the yield
Yields of 1.8% to 5.3% may be lower than you were hoping to find, but it’s important to balance a company’s dividend yield against its overall performance and stability. A double-digit return is worth nothing if the company cuts its dividend before the next payout.
Atlantica Sustainable Infrastructure, NextEra Energy, and Johnson & Johnson, on the other hand, offer dividends that should stand the test of time, bringing long-term rewards to your portfolio.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.