Investing equally in three specific dividend stocks could provide an average yield of 4.8%, potentially generating a steady stream of passive income. The yield of dividend-paying companies often rises when their stock price falls, presenting appealing opportunities for generating passive income. However, the potential of these dividends is contingent on the strength and resilience of the issuing company, particularly if it is currently facing challenges.
United Parcel Service (UPS) and Devon Energy (DVN) are two companies that, despite not currently performing at their best, have the capacity to regain their footing. On the other hand, shares of Kinder Morgan (KMI) have recently reached an eight-year high but may still represent a solid value. According to contributors from the Motley Fool, here is why each of these dividend stocks could be attractive investments now.
United Parcel Service
UPS, analyzed by Daniel Foelber, has a price-to-earnings ratio of 22.2 and a dividend yield of 4.8%. This combination positions it as a potentially attractive high-yield value stock. However, when an established industry leader experiences a reduced valuation or increased yield, there are often underlying reasons. UPS has faced significant declines in sales growth and profitability recently, despite seeing growth during the pandemic. Investors are generally more concerned with a company’s future than its past achievements.
In March, UPS introduced a three-year strategic plan emphasizing increased delivery volumes by 2024 and improved operating margins by 2025 and 2026. While there has been progress, particularly in delivery volumes in the second quarter, sustained efforts are necessary to maintain investor confidence. Although UPS is committed to its dividend, future increases might be modest until the company demonstrates meaningful earnings growth. With a current yield of 4.8%, it still presents an appealing option for income-focused investors.
Devon Energy
Scott Levine discusses Devon Energy as a promising stock for investors seeking stable passive income and currently trading at a bargain. Devon Energy offers a forward dividend yield of 4.9%, with shares trading at 3.8 times operating cash flow—below its five-year average. Despite the S&P 500 rising about 23% year to date, Devon’s shares are down approximately 10%, likely influenced by slight declines in energy prices. West Texas Intermediate (WTI) crude oil, a U.S. benchmark, has decreased around 20% over the past year, fueling speculation of further reductions.
However, it’s essential to recognize the fluctuating nature of energy prices. As a leading exploration and production firm, Devon Energy has navigated past downturns and is likely to endure future challenges. At a WTI price of $70 per barrel, Devon projects a free cash flow yield of 9%, aligning with management’s commitment to returning 70% of free cash flow to shareholders. Investors can gain more confidence by reviewing the company’s third-quarter earnings presentation on November 5, which will include updates such as the recent acquisition of Grayson Mill Energy.
Kinder Morgan
Lee Samaha explores Kinder Morgan’s position in the energy sector, highlighting the slowed transition pace from fossil fuels due to volatile energy prices and complex renewable energy implementation. This shift benefits both the nuclear and natural gas industries, as evidenced by rising stocks in related companies like GE Vernova and Vistra. Kinder Morgan, a leader in natural gas pipelines and LNG infrastructure, also benefits from this trend.
Looking ahead, if predictions about the presidential election prove accurate, a potential new administration could favor expanding U.S. energy production—especially gas. This scenario would alleviate concerns about the long-term viability of natural gas/LNG as energy or export products. While renewable energy adoption continues, natural gas is expected to play a vital role in supplementing intermittent energy sources over the coming decades. As such, Kinder Morgan is likely to continue providing income and dividends, currently yielding 4.7%, to investors for many years to come.
