In a volatile stock market, dividend stocks can provide regular income, while also offering the potential for capital appreciation over the long run. However, it is critical to select the right dividend stocks. While yield is an appealing feature for dividend-seeking investors, a healthy payout ratio and consistency in dividend payments and hikes are additional factors that contribute to a reliable dividend stock. Companies with a long history of dividend payments are more likely to be reliable.
Furthermore, a healthy dividend payout ratio is essential. This metric indicates how much of a company's earnings it is paying out as dividends, and a payout ratio that is not too high suggests that the company can sustain its dividend payments over the long run, while also leaving enough for expansion and debt repayment.
Here are three such reliable dividend stocks that meet these criteria.
#1. NextEra Energy
NextEra Energy (NEE) is a utility company dedicated to providing renewable energy solutions. It has two primary subsidiaries: Florida Power & Light Company (FPL) and NextEra Energy Resources (NEER). While FPL is a regulated electric utility server in Florida, NEER focuses on renewable energy projects across North America, primarily wind and solar.
Valued at $156.1 billion, NEE stock has gained 16.8% year-to-date, compared to the S&P 500 Index’s ($SPX) gain of 18%.
NextEra has a track record of consistently paying dividends, which have increased over time. This trend is often viewed as a positive indicator of financial health and shareholder commitment. NextEra’s adjusted earnings per share increased by 8.3% in the first quarter, while the company generated $609 million in free cash flow.
NextEra’s forward dividend yield of 2.7% exceeds the utility sector average of 3.7%. The forward payout ratio of 55.8% appears manageable, if the company continues to increase earnings and generate positive FCF. During the first quarter, management emphasized that the company's dividend growth target is around 10% per year until at least 2026. NextEra has been increasing dividends for the past 30 years.
The company plans to grow earnings by 6% to 8% in 2025 and 2026. By comparison, analysts predict NextEra’s earnings will increase by 7.4% in 2024, before improving by another 8.2% in 2025. NextEra is a reliable dividend stock, especially for investors seeking exposure to renewable energy.
Overall, analysts have an average rating of “moderate buy” for NEE. The stock is trading close to its mean target price of $77.53; however, its high target price of $95 implies an upside potential of 33.8% over the next 12 months. Out of 17 analysts covering the stock, 10 have a “strong buy” rating, one has a “moderate buy” rating, five have a “hold” rating, and one rates it a “strong sell.”
#2. Coca-Cola
Coca-Cola (KO) is one of the most well-known and enduring beverage brands in the world. Its legacy product portfolio includes customer favorites such as Coca-Cola, Diet Coke, Minute Maid, and Sprite. Despite challenges in the beverage industry and shifting consumer preferences, the company has maintained its market position while delivering consistent financial results. This has enabled Coke to deliver consistent returns to its shareholders.
Valued at $274.4 billion, KO’s stock has gained 7.6% YTD, compared to the broader market.
In the recent first quarter, Coca-Cola’s revenue and adjusted earnings grew by 11% and 7% year-over-year, respectively. The company generated $158 million in FCF, which should allow it to continue paying dividends.
KO pays a forward dividend yield of 3.05%, much higher than the consumer staples sector’s average yield of 1.89%.
Coca-Cola's forward payout ratio is 64.3%, which is slightly higher - but can be sustained, if the company's earnings continue to grow at a consistent rate.
Furthermore, KO is a Dividend King, a select group of companies that have increased their dividends for 50 consecutive years or more. Coca-Cola has hiked its dividends for the past 62 years. Earning this title also demonstrates the company's ability to continue paying and increasing dividends, despite economic downturns.
Management expects 11% to 13% growth in earnings in 2024. Analysts expect Coca-Cola’s earnings to grow by 4.8% in 2024 and 7.1% in 2025.
Overall, analysts have assigned KO stock a "strong buy” rating. Based on its mean target price of $67.17, the stock has an upside potential of 5.9%. The Street-high estimate of $72 represents about a 13.5% increase from current levels. Out of the 20 analysts covering the stock, 14 have a "strong buy" rating on the stock, one has a “moderate buy” rating, and five rate it a "hold."
#3. Eaton Corporation
Eaton Corporation (ETN) is a diversified power management company providing energy-efficient solutions that help customers effectively manage electrical, hydraulic, and mechanical power.
Valued at $132 billion, Eaton stock is up 35.8% YTD, compared to the overall market.
The company's diverse portfolio spans various industries, which has helped it keep its earnings stable, allowing it to deliver solid returns to its shareholders over the years. In the recent first quarter, adjusted earnings increased 28% year-over-year, while Eaton generated FCF of $292 million.
Eaton has increased dividends for the last 15 years. It has a 1.14% forward dividend yield, which is higher than the industrial average of 2.4%. Its dividend payout ratio of 32% suggests dividends are sustainable and have room for further increases.
As the world shifts toward cleaner energy sources and electrification, Eaton is well-positioned to capitalize on increased demand for electrical products and solutions. Management predicts a 14% increase in earnings in 2024. Similarly, analysts expect Eaton’s earnings to grow by 15.2% in 2024 and 11.6% in 2025.
Analysts have assigned a mean target price of $338.27 to ETN, implying a 3.4% upside from current levels. The high target price of $385 further indicates a 17.7% upside over the next 12 months.
Overall, analysts have an average rating of “moderate buy” for ETN stock. Out of 17 analysts covering the stock, 10 have a “strong buy” rating, two have a “moderate buy” rating, four suggest it is a “hold,” and one rates it a “strong sell.”
Eaton's strong fundamentals, growth prospects, and commitment to shareholder returns make it an appealing choice for long-term investors looking to gain exposure to the power management industry.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
