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2 Dividend Stocks to Double Up On Right Now

Motley Fool - Sat Feb 10, 6:38AM CST

Higher interest rates have been a double whammy on dividend stocks over the past several quarters. They increase companies' borrowing costs. On top of that, these higher rates weighed on the valuations of companies that pay higher-yielding dividends.

Higher rates make lower-risk income investments (think bonds and bank CDs) more attractive. As a result, dividend stock prices need to fall, pushing their yields higher. That higher yield compensates investors for their higher risk profiles.

The sell-off in dividend stocks looks like a great time to double up on high-quality opportunities. That's because rates should fall this year, which should take some of the weight off dividend stock prices. NextEra Energy(NYSE: NEE) and Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) look like great stocks to double up on right now (if you have a low allocation) or buy if you don't own any shares yet.

A great value for this top-notch utility stock

Shares of NextEra Energy have lost about a quarter of their value over the past year. That has the utility selling at its most attractive level in years. It currently trades at a forward P/E of around 16.6 times. That's well below the roughly 25 times it fetched early last year.

Meanwhile, the sell-off has pushed NextEra's dividend yield up to 3.3%. That's near its highest level over the past decade.

NextEra Energy has sold off, even though it's growing like a weed. Despite a challenging environment, the company delivered 9% adjusted earnings-per-share growth last year. That continued its trend of growing at an above-average pace. Over the last 10 years, it has delivered roughly 10% adjusted earnings-per-share growth, the highest among the top 10 power companies.

The company is in an excellent position to continue growing at an above-average rate:

A slide showing NextEra Energy's growth outlook through 2026.

Data source: NextEra Energy.

As the company notes on that slide, it expects to deliver results at or near the top end of its ranges through 2026. It has an excellent record of achieving its forecast. The utility has met or exceeded its financial expectations in each of the last 14 years.

With a higher-yielding dividend and more earnings and dividend growth ahead (it has grown its payout at an 11% compound annual rate over the past decade), NextEra Energy stock is a great buy right now.

This top-notch infrastructure stock is on sale

Brookfield Infrastructure has lost over 15% of its value over the past year. That has pushed its dividend yield up to 4.5%.

The global infrastructure operator's sell-off comes even though it had another strong year in 2023. It increased its funds from operations (FFO) by 10%, fueled by strong organic growth of 8% and acquisitions. The company completed $1 billion of new capital projects last year, while also benefiting from inflation-driven rate increases and volume growth across all its global infrastructure networks. That gave Brookfield the confidence to increase its dividend by another 6% for 2024, its 15th straight year of raising its payout.

Brookfield Infrastructure enters 2024 with lots of momentum. It closed $2 billion of new investments (two data center platforms and a global intermodal logistics operation) during the second half of last year, which will help drive growth in 2024.

Meanwhile, it has two more deals lined up to help boost its results this year. Brookfield bought 40 data centers out of bankruptcy from Cyxtera (and the real estate underlying several sites from third-party landlords). In addition, it's buying American Tower's Indian operations. Those deals will enhance its existing operations, which should increase its margins and cash flow.

On top of that boost from acquisitions, Brookfield's organic growth drivers remain strong. While inflation has moderated, it's still driving elevated rate increases across the company's businesses. It's also continuing to benefit from volume growth and capital projects. These catalysts put the company in a strong position to grow its FFO by another 10% this year.

Brookfield trades at an increasingly cheap valuation, given the decline in its share price and continued strong earnings growth. Its year-end FFO run rate was $3.16 per share. That puts its valuation at around 11.4 times FFO. That's dirt cheap compared to the broader market: The S&P 500 trades at 22 times earnings, while the Nasdaq 100 fetches 30 times earnings.

High-quality, higher-yielding dividend stocks at low valuations

NextEra Energy and Brookfield Infrastructure lost value last year even though their earnings grew sharply. Meanwhile, they expect to continue growing in 2024 and beyond. Because of that, they look like incredible buys right now. They offer higher-yielding dividends and trade at lower valuations. That sets them up to potentially generate strong total returns in the future, especially as interest rates start to decline.

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Matthew DiLallo has positions in American Tower, Brookfield Infrastructure, Brookfield Infrastructure Partners, and NextEra Energy. The Motley Fool has positions in and recommends American Tower and NextEra Energy. The Motley Fool recommends Brookfield Infrastructure Partners and recommends the following options: long January 2026 $180 calls on American Tower and short January 2026 $185 calls on American Tower. The Motley Fool has a disclosure policy.

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