Quality dividend stocks may be overlooked in today’s high-flying market. But when the market eventually sells off, collecting a steady stream of passive income without the need to sell shares of stock at a lower price will feel great.
Three Motley Fool contributors were thinking of passive income from stocks when they chose Nike (NYSE: NKE), Whirpool (NYSE: WHR), and Brookfield Renewable (NYSE: BEPC) (NYSE: BEP) as dividend stocks that are down over the last year despite the broader S&P 500 rally.
By Investing $5,500 equally across these three stocks, you can expect to earn over $1,000 in dividend income within four years. Here’s why each stock could be worth buying now.
Despite its struggles, Nike has consistently returned capital to shareholders
Nike has faced a significant decline, down over 45% from its peak, and has experienced a loss in value over the past three years. Despite this downturn, there are signs of improvement within the business.
Following its second-quarter fiscal 2024 earnings call in December, Nike anticipated negative revenue in Q3 due to challenging comparisons. However, it projected low single-digit revenue growth in Q4, culminating in just a 1% increase in revenue for fiscal 2024 compared to fiscal 2023.
In its Q3 earnings report released on March 21, Nike exceeded expectations with slightly increased revenue compared to the previous year. While not groundbreaking, this development represents a positive step forward for patient investors.
Challenges persist for Nike, particularly in China, amidst fierce competition from both established players and emerging brands like Lululemon, On Holding, and Hoka, owned by Deckers Outdoor.
Nike’s financial performance can fluctuate based on consumer spending trends. However, the company remains committed to returning capital to shareholders through dividend raises and stock buybacks.
In the recent quarter, Nike distributed $562 million to shareholders through dividends, marking a 6% increase from the previous year. Additionally, it repurchased $866 million in stock, with approximately $8 billion repurchased as part of its four-year, $18 billion buyback program initiated by the board in June 2022.
Although Nike’s dividend yield sits at 1.4%, which may not appear particularly attractive, it has more than tripled over the past decade, while outstanding shares have decreased by over 13%. Given Nike’s aggressive buyback program, the pace of repurchases is expected to accelerate.
With a price-to-earnings (P/E) ratio below 30, Nike presents itself as a reasonable value proposition considering its robust brand. However, some investors may opt to monitor the company’s progress before making any investment decisions, allowing the turnaround efforts ample time to unfold.
Whirlpool is an excellent stock for housing market bulls
Whirlpool faces challenges ahead due to relatively high interest rates, which can dampen demand in the housing market and consequently affect sales of household appliances. Management anticipates flat like-for-like sales growth and adjusted earnings before interest and taxation (EBIT) margin in 2024 compared to 2023.
Despite the anticipated difficulties, this year may mark a low point for the company, as management is actively restructuring for future growth. The forthcoming divestment of its low-margin European business will allow Whirlpool to concentrate on its most profitable markets such as North America, Latin America, and India. Moreover, after achieving $800 million in cost reductions in 2023, management aims to achieve further savings of $300 million to $400 million in 2024.
Despite the near-term challenges, Wall Street analysts expect Whirlpool to generate earnings per share of $13.51 in 2024. This ample earnings capacity enables the company to maintain its dividend of $7 per share, providing investors with income while awaiting a potential improvement in the interest rate environment, which could bolster Whirlpool’s sales prospects.
For investors optimistic about the long-term outlook for the U.S. housing market, Whirlpool presents an attractive opportunity to invest in this theme.
Brookfield Renewable offers income investors a place in the sun
Investors of all ages recognize the value of generating passive income, making investments in reliable dividend stocks like Brookfield Renewable a wise choice. Currently boasting a forward yield of 5.9%, Brookfield Renewable presents an opportunity for both young investors to build substantial nest eggs and older investors to manage their existing ones.
As one of the largest operators of clean energy portfolios globally, Brookfield Renewable secures long-term agreements with customers who purchase power generated from its solar, wind, and hydropower assets. With the majority of its contracts averaging 13 years in duration, the company enjoys visibility into future cash flows, allowing management to strategically allocate capital. This approach involves advancing projects in its pipeline to drive growth while prudently distributing cash to shareholders. Brookfield Renewable aims for annual dividend increases between 5% to 9% while simultaneously targeting 10% annual growth in funds from operation (FFO) from 2023 through 2028.
Seasoned investors may approach these targets with skepticism, given the tendency of some companies to offer overly optimistic outlooks. However, a glance at Brookfield Renewable’s track record provides reassurance. From 2012 to 2023, the company achieved compound annual growth rates of 10% for FFO and 6% for distributions, demonstrating its ability to deliver on its commitments.
