The dividend yield on the average stock has fallen over the past year due to the surge in the stock market. For example, the S&P 500's dividend yield has declined from 1.6% a year ago to around 1.2% these days, which is near its lowest level in over 20 years.
However, some stocks still offer higher-yielding dividends. Enterprise Products Partners(NYSE: EPD), Clearway Energy(NYSE: CWEN)(NYSE: CWEN.A), and Brookfield Renewable(NYSE: BEP)(NYSE: BEPC) stand out to a few Fool.com contributors as great stocks to buy as we head into the new year. Here's why they're great income stocks to buy right now.
Enterprise Products Partners is built to pay you well
Reuben Gregg Brewer (Enterprise Products Partners): How about buying an investment-grade-rated energy company with a shockingly reliable business and a 6.5% yield? If that sounds good to you, then you may want to buy North American midstream giant Enterprise Products Partners before 2024 is over.
From a business perspective, this high-yielder owns the energy infrastructure that helps move oil and natural gas around the world. The energy sector couldn't operate without the pipelines, storage, transportation, and processing assets Enterprise owns. And its customers are happy to pay the fees necessary to use Enterprise's infrastructure, making the master limited partnership (MLP) a simple toll-taker business.
The big takeaway -- volatile commodity prices aren't the main driver of financial results. This is a big part of the reason it has been able to reliably increase its distribution for 26 consecutive years.
Throw in an investment-grade-rated balance sheet and the fact that distributable cash flow covers the distribution by around 1.7 times, and there's a lot of room for adversity before a distribution cut would be a material risk. Sure, the lofty yield will make up most of an investor's return here, but Enterprise does have around $6.9 billion in capital investment projects underway and the size to act as an industry consolidator. Slow and steady distribution growth looks likely to continue for years to come from this high yielder.
The power to grow its dividend in 2025 and beyond
Matt DiLallo (Clearway Energy): Clearway Energy currently offers investors a 6.5% dividend yield. That's a hefty payout compared to the S&P 500, which yields around 1.2%.
The clean energy infrastructure owner is having another solid year. It's on track to meet or exceed its guidance of generating $395 million of cash available for distribution (CAFD) this year. That has given it the power to increase its dividend by 7% over the course of the year, hitting its goal of delivering dividend growth toward the high end of its 5% to 8% annual target range.
Clearway has already lined up a lot of growth for 2025 and beyond. It expects previously funded investments to grow its CAFD to $420 million at the mid-point of its target range. That should enable it to increase its dividend by about 6.8% over the next year.
The company already has more growth lined up for 2026 and is building toward 2027. It has secured several new investments in renewable energy projects that will enter commercial service over the next year and has started securing new contracts for its natural gas-fired power plants. These initiatives should help grow CAFD per share at a 7.5% to 12.5% compound annual rate in the 2026 to 2027 timeframe from next year's baseline.
That should support another 6.5% increase in the dividend in 2026 and growth toward the lower end of its target range the following year. Beyond 2027, Clearway sees the potential to continue growing its CAFD and dividend at a mid- to high-single-digit annual rate as it continues investing in new renewable energy assets.
Given its already high yield, Clearway has the potential to produce high total returns in the coming years as it grows its CAFD and dividend payments. That combination of yield and growth makes it look like a great income stock to buy before this year is over.
Lots more dividend growth ahead
Neha Chamaria(Brookfield Renewable): Shares of Brookfield Renewable have significantly underperformed the S&P 500 in 2024. Still, Brookfield Renewable has big growth plans, is steadily growing its funds from operations (FFO), and is sending out bigger dividend checks to its shareholders year after year.
Brookfield Renewable grew its FFO per unit by around 7% during the nine months that ended Sept. 30 and expects to grow it by more than 10% in the full year, backed by its recent acquisitions and development projects. In fact, 2024 will be the company's strongest year for investments in growth as it continues to steadily raise cash to invest from two sources: cash-flow growth and proceeds from the sale of mature assets.
In 2024 alone, Brookfield Renewable expects to commission 7 gigawatts (GW) of renewable energy capacity, a record for the company. Its total development pipeline soared to a whopping 200 GW at the end of the third quarter. Brookfield Renewable expects to grow its pipeline even further in 2025 and 2026 and believes it should be able to grow its annual FFO per unit by 10% or more over the next five years and beyond.
For investors, Brookfield Renewable's FFO growth should translate into bigger dividends. The company expects to grow its annual dividend by 5% to 9%. Couple that with a high dividend yield -- its corporate shares currently yield 5.1%, while units of the partnership yield 6.3% -- and Brookfield Renewable looks like a solid dividend stock to buy before 2024 draws to a close. Note that purchasing corporate shares can help investors in the U.S. avoid filing a K-1 tax form and foreign tax withholding.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Clearway Energy, and Enterprise Products Partners. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable, Brookfield Renewable Partners, and Enterprise Products Partners. The Motley Fool has a disclosure policy.
