Investing $ 10,000 in this basket of dividend-paying stocks should earn you $ 550 in income in 2022
Most investors buy a stock with the expectation that its price will rise over time. Dividend-paying stocks add the icing on the cake to this underlying investment thesis. However, income stocks reverse the scenario. With high-yielding dividend stocks, the dividend is ice cream, and if the stock price goes up, that’s the icing on the cake.
If you invest $ 10,000 in equal parts of Kinder Morgan (NYSE: KMI), Clearway Energy (NYSE: CWEN), and Schweitzer-Mauduit (NYSE: SWM) you should earn $ 550 in income in 2022. Here’s what makes every dividend stock a great buy now.
The more boring the better
Daniel Foelber (Kinder Morgan): Pipeline giant Kinder Morgan is unlikely to impress growth-oriented investors with its stable, high-cash-flow business model. But what it lacks in flair it makes up for with one of the highest dividend yields of all. S&P 500 member.
With a yield of 6.7%, Kinder Morgan’s dividend isn’t just a change. Rather, it is basically the full investment thesis for buying the stock. Kinder Morgan’s share price hasn’t done much in recent years as the natural gas industry faces both short and long term challenges of energy transition. Kinder Morgan’s response to this threat is simply to invest in safe options like pipelines in oil and gas fields that are in desperate need of higher removal capacity. These new investments, along with acquiring existing assets at low prices, can generate a lot of free cash flow (FCF), which Kinder Morgan can then use to buy back stocks and increase its dividend.
Even if the world embraces electrification, Kinder Morgan’s infrastructure will likely be needed for decades to come. The transportation and storage of natural gas is an essential element fueling the industrial economy. Income investors looking for high dividend stocks are primarily concerned with a company’s ability to pay and increase its dividend, not with the stock price itself. Given Kinder Morgan’s low spending, large existing portfolio, and significantly improved balance sheet, the company is better positioned than its peers to pay and grow its dividend over time. Investors looking to generate low-tax income from dividends in 2022 should look no further than Kinder Morgan.
A green way to passively collect a lot of green
Scott Levine (Clearway Energy): Interested in electrifying your passive income stream next year? You’re not alone. Many of us are billed at the prospect of being paid for doing nothing. But the opportunity to feel like your investment is also good – it’s an idea that many of us could support. This is where the attractiveness of Clearway Energy lies. The company operates clean energy assets as well as conventional energy assets across the United States, and its stock currently offers an attractive term dividend yield of 3.9% thanks to a recent increase of 1.6 % payout at $ 0.34 per share in Q4 2021. Beyond 2022, investors can expect further dividend increases; Management has identified a target to increase the annual dividend from 5% to 8% until 2026.
When a company proclaims ambitious dividend growth targets, the market certainly notices, but it doesn’t mean much if investors are not confident in the company’s ability to generate enough capital to generate enough capital. then return to the shareholders. Clearway Energy, however, appears determined to maintain the dividend.
At the end of October, the company announced its intention to sell its thermal business to KKR for a total consideration of $ 1.9 billion. Addressing the value of the divestiture and the opportunities offered by its sponsor, Global Infrastructure Partners, Christopher Sotos, CEO of the company, commented: “Given the strong development pipeline of our sponsor, the company is now in one of the best positions in its history to deliver long-term CAFD [cash available for distribution] growth per share and economic value. “
In fact, the company plans to use the capital from the sale of the thermal business to develop projects in its pipeline, which could generate up to $ 2.15 per share in CAFD by 2026. If Clearway Energy grows each year the dividend at 8% versus $ 1.36 distribution per share at present, it will be around $ 2 per share in 2020 – a level that will be sufficiently covered by CAFD’s $ 2.15 per share.
Buy Schweitzer-Mauduit for what it could become
Lee Samaha (Schweitzer-Mauduit): This action is reserved for value investors and dividend investors. The paper and materials company is trading at a low valuation (13 times estimated earnings in 2021) and is offering investors a 5.9% dividend yield.
However, there is a reason for the low valuation of the paper stock. It is explained by the lack of growth potential in its historical core business, namely tobacco-related papers (called its technical papers segment). That said, no one buys Schweitzer-Mauduit for their exposure to tobacco. Instead, the case for buying the stock hinges on the idea that earnings and cash flow from its technical papers segment will support the company in its acquisition drive to grow its business. of advanced materials and structures (AMS).
Within AMS, the company manufactures resin-based nets, films and other nonwovens for the filtration, construction, medical and industrial markets. Examples of the type of acquisitions that Schweitzer-Mauduit management is making include the $ 155 million purchase of Tekra and Trient, high performance technical film converters, in 2020 and the $ 552 million acquisition of Scapa. , which focuses on medical materials.
Thus, the company’s dependence on tobacco products is expected to decrease over time and be replaced by more diverse end markets. As a result, Wall Street analysts have the company traded on an enterprise value (market capitalization plus net debt) at earnings before interest, taxes, depreciation and amortization (EBITDA) of less than four in 2022. That’s a excellent assessment if the acquisition strategy works. During this time, you earn a 5.8% return.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.