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After a Down Year in 2023, These 3 Top Dividend Stocks Could Bounce Back Big Time in 2024

Motley Fool - Mon Jan 8, 7:30AM CST

Last year was a great one for the stock market overall. The S&P 500 rallied more than 24% and closed near its all-time high. Meanwhile, the tech-heavy Nasdaq was up even more.

However, there were some notable underperformers in 2023. Dividend stocks, in particular, were weaker last year, weighed down by rising interest rates and other issues.

That trend could reverse in 2024, powering rebound years for many dividend stocks. NextEra Energy(NYSE: NEE), Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP), and NextEra Energy Partners(NYSE: NEP) stand out to a few Fool.com contributors as those that could soar in 2024.

NextEra Energy's plans haven't changed

Reuben Gregg Brewer (NextEra Energy): There was a big reveal from NextEra Energy in 2023. In late September, the utility company announced that distribution growth at its controlled master limited partnership (MLP), NextEra Energy Partners, would be cut in half. Rising interest rates and a steep decline in the MLP's share price as investors soured on clean energy assets were key trouble spots. Essentially, the MLP's prospects aren't nearly as rosy as they once were.

NEE Chart

NEE data by YCharts

Given that NextEra Energy's business is broken down into 70% regulated utility and 30% clean energy investments, it makes sense that Wall Street's thoughts turned even more negative than they had been. Although there was a bounce in NextEra Energy's stock during the end-of-year rally, it still lost more than 25% in 2023. But here's the interesting thing about that September update: NextEra Energy reiterated its expectations for its own earnings to increase between 6% and 8% a year through 2026 and for dividend growth to be 10% a year through at least 2024.

Basically, NextEra Energy is cognizant of the troubles in the clean energy space, but isn't particularly worried about the impact it will have on its own business. Being one of the largest regulated utility companies in the United States, the company has ample access to capital and a strong foundation. As 2024 progresses and investors grow more comfortable with NextEra Energy's still-robust outlook, it is highly likely this dividend growth stock will continue to recover. And, in the meantime, investors can collect the 3% dividend yield, which remains near its highest levels over the past decade.

Catalysts galore

Matt DiLallo (Brookfield Infrastructure): Shares of Brookfield Infrastructure fell 9.3% in 2023.The main factor weighing on the stock was rising interest rates. That's largely because Brookfield pays a higher dividend yield (currently 4.3%). Its shares were less attractive to income-focused investors since they had plenty of other options with even lower risk profiles, like bank CDs and government bonds.

However, interest rates should shift from being a headwind to a tailwind in 2024. The Federal Reserve hinted last month that it plans to cut them a few times this year. Brookfield will become more attractive to income-seeking investors as rates fall, which should boost its share price.

Rates aren't the only catalyst for Brookfield Infrastructure. The company's growth rate should accelerate in the coming quarters, powered by recent acquisitions. While its funds from operations (FFO) were up a solid 7% in the third quarter (driven by higher tariffs across its existing businesses and completing $1 billion in expansion projects), those results didn't reflect recent acquisitions. Furthermore, they were dragged down by $2 billion in asset sales that closed in Q2. It's using those sales to fund four new investments that closed over the past quarter (three data center investments and a leading global container leasing company).

Those deals should have given Brookfield the fuel to deliver double-digit FFO-per-share growth last year. Meanwhile, they give Brookfield lots of momentum heading into 2024, when it could once again achieve a double-digit earnings growth rate.

The company's rising earnings should give it the fuel to continue increasing its dividend. It's targeting to grow its already high-yielding payout by 5% to 9% per year. That will make its dividend even more attractive as rates fall, which could help its stock bounce back sharply in 2024.

Down but not out

Neha Chamaria(NextEra Energy Partners): Given how steadily NextEra Energy Partners was growing its cash flows and dividends, not many expected the renewable energy stock to plunge 58% in 2023. However, barely a month after projecting 12% to 15% growth in annual dividends through 2026, NextEra Energy Partners slashed its target to only 5% to 8% in September as higher interest rates made funding for growth and dividends costlier for the company. Unsurprisingly, investors who banked on the stock's dividend stability were quick to dump it. The shares now yield a hefty 11.3%.

For income investors, though, NextEra Energy Partners stock still has much to offer and there's a solid chance it could rebound in 2024. That's because the company is already working on a turnaround plan, and its parent NextEra Energy is keen to make it a success.

Under its revitalization plan, NextEra Energy Partners will primarily rely on organic growth to generate cash flows. Specifically, it will repower nearly 1.3 gigawatts of its existing wind projects in the near term. Meanwhile, the company will continue to pursue opportunities to acquire renewable energy assets from its parent or third parties. NextEra Energy Partners also recently sold a portion of its natural gas assets and has some more to go.

NextEra Energy Partners believes all of these moves combined should generate enough cash flow so that the company can fund its dividend and won't have to issue new shares to raise fresh capital until 2027. Its current dividend growth goal of 5% to 8%, with a target of a 6% boost per year, is also comparable to peers and therefore looks sustainable. With interest rates also expected to cool down, NextEra Energy Partners looks like a great dividend stock to own for 2024.

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Matthew DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, NextEra Energy, and NextEra Energy Partners. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.

Paid Post: Content produced by Motley Fool. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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