There are two basic ways to generate a return from holding stocks: capital gains and dividends. Capital gains are when investors get rewarded for a company's stock compounding in value, whereas dividends are when a company distributes a portion of its corporate profits directly to shareholders.
Companies with growing dividends that also have a stock compounding in value over time can help investors achieve their passive income and long-term financial goals.
Three Motley Fool contributors were asked to outline why Deere (NYSE: DE), Cheniere Energy Partners L.P.(NYSE: CQP), and SunocoL.P.(NYSE: SUN) are three dividend stocks that can continue outperforming the S&P 500(SNPINDEX: ^GSPC) beyond 2025.
Image source: Getty Images.
Deere is a coiled spring for long-term economic growth
Daniel Foelber (Deere): Deere leaped to a new all-time high on May 16 after reporting second-quarter fiscal 2025 results.
At first glance, the move higher may come as a surprise, given Deere's worldwide net sales fell 16% year over year and net income was down 24%. It also widened the low end of its full-year net income guidance from a prior range of $5 billion to $5.5 billion to a new range of $4.75 billion to $5.5 billion. But investors may have been expecting even worse results, given global tariff tensions and economic uncertainty.
Deere notched an 18.8% margin on equipment operations during the quarter -- which was better than expected, given cost pressures. On the earnings call, Deere management said that incremental tariff headwinds during the quarter were $100 million and that it expects a full fiscal year pre-tax tariff impact of just over $500 million if current tariff levels persist.
There are a few ways to digest this news. The negative is that tariffs are impacting Deere's bottom line. But the impact would be much worse if Deere didn't manufacture so many of its products in the U.S. (and source the majority of its components from U.S. suppliers). So the company is well-positioned to handle tariffs compared to companies with more globalized supply chains.
Additionally, basic math tells us that without the tariff impact, Deere may have actually raised its full-year guidance, which is a testament to its strong results despite weakness in several end markets.
Most importantly, nothing has changed about Deere's long-term investment thesis. The company continues to be an industry leader in agriculture and a major player in construction and forestry. It generates plenty of free cash flow to support its growing dividend, repurchase stock, and invest in research and development projects in artificial intelligence (AI) and automation.
Despite being at an all-time high, Deere stock isn't terribly overpriced. Based on full-year net income at the midpoint of guidance of $5.13 billion, Deere would have a price-to-earnings (P/E) ratio of around 28.1 -- which isn't bad for a company in a cyclical downturn. Cyclical companies will see their P/E ratios inflate during downturns and compress during expansion periods. But given the operating environment, Deere is reasonably priced.
Deere's dividend yields just 1.2%, but the company tends to spend considerably more on share buybacks than dividends. It is focused on generating long-term growth, rather than passing along too much of its profits directly to shareholders through dividends. The strategy has worked out marvelously for Deere investors, who have enjoyed a 285% gain over the last five years and a 25% gain year to date.
Given Deere's competitive advantages and strong management team, I expect the stock to continue outperforming the S&P 500 for years to come.
Cheniere Energy Partners has a 5.3% distribution yield
Lee Samaha(Cheniere Energy Partners): Cheniere is a master limited partnership (MLP) and owner of the Sabine Pass LNG Terminal in Louisiana, one of the largest liquefied natural gas (LNG) facilities in the world.
Not to be confused with its parent company, Cheniere Energy, it generates a stream of long-term stable and recurring cash flow, primarily via large take-or-pay long-term contracts with major energy corporations. For example, a list of its major partners in 2024 (generating more than 10% of its external revenue) includes Korea Gas, BG Gulf Coast LNG (part of Shell), GAIL India (the country's largest natural gas company), Spain's Naturgy LNG, and TotalEnergies Gas & Power North America (part of TotalEnergies). Together, these five customers contributed 77% of Cheniere's external revenue in 2024.
The cast list of major, financially stable customers secures Cheniere's cash flows and enables it to support its debt and make hefty distributions to its unit holders -- the current yield is 5.3%.
The stock is up 15.3% this year compared to a slight gain on the S&P 500. It offers long-term upside potential from the continuing growth of the U.S. as a major exporter of LNG worldwide, which the current administration supports. For example, President Donald Trump lifted the pause in permitting new LNG projects put in place by the last administration.
With a supportive administration in place and Russia's LNG exports negatively impacted by geopolitical affairs, the environment is conducive to investment in LNG projects, and that's good news for Cheniere Energy Partners.
A new acquisition for Sunoco should provide the fuel for plenty of growth
Scott Levine (Sunoco): While the S&P 500 has vacillated wildly so far in 2025, Sunoco stock has performed consistently better. As of this writing, the midstream company's stock is up 9.6% year to date, compared to a 1.3% gain in the S&P 500. And that's without factoring in dividends.
Amid the bearish market sentiment and drop in oil prices, many energy stocks have hardly fared this well, and it's probably that the company's newly announced acquisition will support the stock's further market outperformance. Consequently, it -- and its 6.3% forward-yielding dividend -- has become a compelling consideration for income investors.
Characterizing itself as "North America's Largest independent fuel distributor," Sunoco will diversify its operations well beyond the approximately 14,000 miles of pipeline and 124 terminals (in addition to other infrastructure) in which it currently operates distribution with the closing of its $9.1 billion acquisition of Parkland, which is expected to occur in the second half of 2025.
Since the two companies operate in similar geographies -- throughout North America and South America (as well as in Europe) -- management expects to recognize synergies, totaling a $250 million run rate in the third year after the acquisition is completed. The transaction, moreover, is expected to immediately produce additional distributable cash flow, leading to a 10% increase in distributable cash flow in the third year after the acquisition closes -- an encouraging sign for income investors who want reassurance that the company's distributions are sustainable.
Management projects that once the acquisition closes, the pro forma company will contribute to a more than 50% increase in free cash flow compared to Sunoco prior to the acquisition of Parkland. And with this more robust free cash flow, management foresees the ability to pursue even more growth opportunities.
For income investors, today seems like a great time to fuel up on Sunoco stock.
Should you invest $1,000 in Deere & Company right now?
Before you buy stock in Deere & Company, 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 Deere & Company wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $642,582!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $829,879!*
Now, it’s worth notingStock Advisor’s total average return is975% — a market-crushing outperformance compared to172%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
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 no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cheniere Energy and Deere & Company. The Motley Fool has a disclosure policy.
