The benefits of investing in dividend stocks can feel modest when the major market indexes are notching all-time highs. But the passive income they provide can be an excellent supplement to your finances no matter what equity prices are doing.
With the S&P 500(SNPINDEX: ^GSPC) yielding just 1.2%, investors will have to look beyond index funds if they want to generate meaningful levels amount of dividend income. If that's your goal, United Parcel Service(NYSE: UPS), Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), and Conagra Brands(NYSE: CAG) stand out as dividend stocks to buy now.
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Investors should welcome the change in UPS' business
Lee Samaha (UPS): The package delivery giant has had its troubles in recent years. Among them, a few years ago, it built up its capacity based on an overestimation of where small package delivery demand was headed, and more recently, it engaged in a protracted and costly contract renegotiation with its workers. Still, its recent momentous announcement that it intends to reduce the volume of Amazon.com deliveries it handles by 50% by the second half of 2026 should be welcomed by investors.
Engineering the changes necessary to reduce its low-margin (or even no-margin) deliveries from Amazon won't be a walk in the park, and investors should keep an eye on how the company's efforts play out. But management's approach here makes sense.
Simply put, UPS' new strategy is to make the best use of its network by dedicating more of its capacity to higher-margin deliveries from targeted clientele such as small and medium-sized businesses and healthcare companies. That dovetails with its plan to lower the volume of deliveries it handles for Amazon, in particular to more costly-to-deliver and hard-to-reach residential addresses.
If management's direction proves wise, then these changes will be a net positive for the company. The question of how well it can execute on this strategy remains, but it makes sense to start the initiative now rather than continuing to try to wring profitability from -- and maintain a network to service -- deliveries in a category that UPS doesn't want to focus on over the long term.
That's a particularly relevant point given that UPS is building out what it calls its "network of the future" through investments in automation and smart facilities. The productivity enhancements it can derive from these investments will allow it to close less efficient facilities, and it makes sense to dial back on less desirable deliveries from Amazon while it makes these changes to its network.
With the stock sporting a 5.6% dividend yield at current share prices, and with transformative changes afoot at the company, UPS looks like a good opportunity for yield-chasing investors.
The market is underestimating Brookfield Renewable
Scott Levine (Brookfield Renewable): It's no secret that President Trump is unenthusiastic about supporting the expansion of renewable energy in the U.S. In late January, for example, the Department of the Interior issued an order that inhibits the development of renewable energy activities both on federal lands and offshore.
Fearing that the Trump administration will stymie the development of the renewable energy industry in the United States, investors have lately turned a cold shoulder to clean energy stocks. Among them is Brookfield Renewable, which has tumbled almost 15% since Election Day as investors anticipate that the company will suffer for as long as the U.S. is led by a president who outspokenly favors the fossil fuel industry. However, these investors are overlooking some important points about the company's operations, and the sell-off has created a great opportunity for patient investors to boost their passive income streams.
For one thing, the company's expansive global operations extend well beyond the United States. Brookfield Renewable's more than $100 billion in assets under management are located in about 30 power markets spread across more than 20 countries. With regards to the sustainability of the dividend -- which at recent share prices offers a juicy 5.4% forward yield -- Brookfield Renewable's business is largely built on long-term power purchase agreements. About 90% of its funds from operations -- which it uses to cover its dividend payouts -- are sourced from contracts that have an average remaining duration of over 13 years. In other words, the company can see clearly what its future cash flows will be. That allows management to plan for capital expenditures such as acquisitions and dividend payments.
After its recent sell-off, Brookfield Renewable looks like one of the most attractive renewable energy dividend stocks to buy now.
Conagra Brands has income and value written all over it
Daniel Foelber (Conagra Brands): Shares of Conagra Brands are hovering around their five-year low. The owner of such well-known brands as Slim Jim, Reddi-Wip, and Orville Redenbacher's has been under pressure as demand slows across the packaged food industry.
On Feb. 17, Conagra updated its fiscal 2025 guidance. Management now anticipates a 14.4% adjusted operating margin and adjusted earnings per share of $2.35 for the year, and predicts that organic sales will shrink by 2%. All of those numbers are lower than the company offered when it delivered its fiscal 2025 second-quarter results on Dec. 19.
In his prepared remarks on the December earnings call, CEO Sean Connolly said:
Our revised guidance reflects both our prioritization of continued momentum with the consumer and our expectation that the inflation relief we previously expected in the second half of fiscal 25 is still forthcoming, but in fiscal 26. As I noted, economic pressures continue to shape consumer purchasing decisions. We're still seeing value seeking behaviors, with consumers prioritizing affordability and maximizing value.
In other words, management isn't as optimistic as it was a few months ago, suggesting that the company is experiencing demand pressure. Conagra's stock price has tumbled in lockstep with its falling operating margins even as sales have held steady.
While the business is certainly not doing great, Conagra is progressing in paying down its debt and reducing its leverage. Although it isn't repurchasing stock, it continues to boost its dividend.
The combination of a languishing stock price and consistent annual dividend raises since 2021, have pushed its yield to its highest level in a decade.
Conagra's ultra-high yield offers a worthwhile incentive to hold the stock through this challenging period, but only for investors who are confident in the company's ability to endure the downturn and return to growth. Based on its 2025 updated adjusted earnings guidance, it trades at a forward price-to-earnings ratio of about 10.3 -- which is dirt cheap. Add it all up, and Conagra Brands stands out as an intriguing stock for value investors to scoop up in February.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has positions in Brookfield Renewable. The Motley Fool has positions in and recommends Amazon. The Motley Fool recommends Brookfield Renewable, Brookfield Renewable Partners, and United Parcel Service. The Motley Fool has a disclosure policy.
