We recently compiled a list of the 12 Best Dividend Stocks Under $25. In this article, we are going to take a look at where Energy Transfer LP (NYSE:ET) stands against the other dividend stocks under $25.
Dividend stocks have remained important for investors, standing the test of time regardless of the market conditions. Dividends have historically contributed approximately one-third of the market’s total return since 1960. Among dividend strategies, investors tend to favor those that emphasize dividend growth over high yield. One of the main reasons for this inclination is that as these companies show more tangible results, investors gain confidence from seeing improvements in free cash flow, earnings, and dividend growth during a recovery, compared to more speculative options. In addition, as interest rates decrease with Federal Reserve rate cuts in an economic recovery, yield-oriented investors shift their investments from cash to dividend-paying stocks.
According to analysts, due to volatile economic conditions since 2020 and ongoing market uncertainties affecting corporate earnings, high-yielding companies lacking strong financial stability and discipline may face challenges sustaining future dividend payouts. These companies could be vulnerable to potential dividend cuts or suspensions. On the other hand, dividend growth strategies have demonstrated their effectiveness in both rising and falling interest rate periods. The Dividend Aristocrats index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, delivered a 14.26% return during the falling interest rates period between May 2005 and March 2024, while high dividend stocks underperformed with over 10% return, according to a report ProShares. Similarly, in the rising interest rates period between this timeframe, dividend growers returned 10.26%, with high dividend stocks returning 9.22%. To learn more about dividend growth stocks, readers should have a look at Dividend Zombies and Kings with Longest Dividend Payouts.
Dividend growth strategies offer potential solutions to the challenges faced by high dividend-paying stocks in a rising-rate environment in two main ways. By prioritizing dividend increases over high yields, dividend growth stocks are less influenced by the value factor, which typically affects high dividend payers. This resilience allows dividend growth stocks to perform better in growth-oriented markets.
Given investors’ penchant for dividend-paying companies, businesses worldwide are consistently rewarding shareholders with dividends. According to Janus Henderson, dividends rose by 5% in 2023 to $1.66 trillion, marking the third consecutive year of record highs following a brief dip in payouts during the pandemic in 2020. The fund manager expects total dividends to reach a new peak of $1.72 trillion, reflecting a 3.9% increase on a headline basis. The payments indicate that balance sheets remain strong, despite a global economic downturn and increased costs associated with servicing debt. It also underscores the advantages for the banking sector of higher interest rates. Nearly half of last year’s dividend growth came from banks, which rewarded shareholders after experiencing a significant increase in profits from lending activities.
Our Methodology:
For this list, we used a stock screener to find dividend stocks trading below $25 as of June 21. From the initial list, we selected companies with dividend yields above 2% and a history of regular dividend payments, indicating sustainable dividends. Finally, we narrowed it down to 12 stocks that had the highest number of hedge fund investors, as tracked by Insider Monkey in Q1 2024. Hedge funds aren’t dividend investors; they invest in stocks for capital gains. Essentially, our list presents the best dividend stocks under $25 that have the potential to deliver large capital gains. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of an oil rig at sunrise, emphasizing the power of the natural gas transportation industry.
Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 32
Share Price as of June 21: $15.7
Energy Transfer LP (NYSE:ET) is a Texas-based company that is engaged in the transportation, storage, and distribution of natural gas, natural gas liquids, crude oil, and refined products. It is one of the best dividend stocks on our list as the company has raised its payouts for ten consecutive years. It currently offers a quarterly dividend of $0.3175 per share and has a dividend yield of 7.98%, as of June 21. The company’s future dividends are safe because of its strong cash position. In the most recent quarter, its Distributable Cash Flow (DCF) came in at $2.36 billion, growing from $2.01 billion in the prior year period.
Energy Transfer LP (NYSE:ET) has capitalized on acquisitions to gain significant momentum, setting the stage for an anticipated approximately 10% earnings growth this year. Recently, it announced plans to acquire WTG Midstream Holdings from affiliates of Diamondback Energy (FANG), Stonepeak, and the Davis Estate for around $3.25 billion. This acquisition is aimed at enhancing the company’s access to growing volumes of natural gas liquids and natural gas, particularly benefiting its operations in the Permian Basin and downstream sectors. In addition, the company successfully completed two major deals last year, further strengthening its strategic position in the market.
New growth projects and acquisitions have had a substantial impact on the volumes across Energy Transfer LP (NYSE:ET)’s assets. In the first quarter of 2024, the company posted a 44% increase in crude oil transportation volumes and a 10% rise in crude oil terminal volumes. Nearly all segments of the company reported growth during the quarter. Adjusted EBITDA reached nearly 4$ billion, marking a more than 13% increase compared to the same period last year. For FY24, the company expects to generate between $15 billion and $15.3 billion in adjusted EBITDA.
According to Insider Monkey’s database of Q1 2024, 32 hedge funds owned stakes in Energy Transfer LP (NYSE:ET), compared with 34 in the previous quarter. These stakes have a total value of nearly $930 million. With over 17.8 million shares, Abrams Capital Management was the company’s leading stakeholder in Q1.
Overall ET ranks 4th on our list of the best dividend stocks to buy under $25. You can visit 12 Best Dividend Stocks Under $25 to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of ET as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than ET but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
