We recently compiled a list of the 10 Best Dividend-Paying Stocks Under $50. In this article, we are going to take a look at where Enterprise Products Partners L.P. (NYSE:EPD) stands against the other dividend-paying stocks under $50.
The bullish market trend that had been ongoing since October 2022 faced a disruption in early August. Investor sentiment shifted as concerns about the U.S. economy’s strength grew. This change was triggered by a jobs report, which revealed modest job growth in July and a rise in the national unemployment rate. These figures sparked worries about potential economic challenges and doubts about whether the Federal Reserve had acted too slowly in implementing anticipated interest rate cuts that were expected to support the economy. As a result, stock markets saw sharp declines over several consecutive trading days. The broader market fell by 3% between August 2 and August 5.
According to analysts, despite the recent downturn in the market, there is no reason for equity investors to become overly cautious. The outlook remains positive, and it is still considered a favorable time to invest. For those holding cash, this period presents an opportunity to allocate capital to longer-term assets. Positive investment trends, particularly in AI but extending beyond it, offer ample opportunities for stock growth. Additionally, rising dividends provide another attractive element for investors to consider. Although dividend stocks have been underperforming relative to the broader market recently, they remain a popular choice due to their long-term returns. The Dividend Aristocrats Index has risen slightly over 6% this year, but the growth in dividends among US companies is promising. Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, forecasts a 6% increase in dividend payments for 2024, up from a 5.1% rise in 2023.
Also read: 10 Highest Paying Monthly Dividend Stocks
Dividend growth has been a trend this year, compared to the previous year. In the first and second quarters of 2024, dividends paid by US companies have grown significantly. According to Silverblatt, the significant takeaway from both quarters was the performance of large-cap companies. In April, Alphabet began paying a $9.3 billion dividend, joining other major dividend initiations in the first quarter, such as Bookings with $1.2 billion, Meta Platforms with $4.4 billion, and Salesforce with $1.5 billion. These initiatives contributed to 53% of the S&P 500’s year-to-date indicated dividend increase. Although gains without these new initiations were already setting a record for the broader market dividend payments in 2024, the additional forward cash commitments to dividends are expected to significantly boost payouts and prompt both investors and non-paying boards to reconsider their strategies.
Dividend stocks have historically made a substantial contribution to overall market returns. According to a Hartford Funds report, from 1940 to 2023, dividend income accounted for an average of 34% of the total market return. Analysts have long explored various dividend strategies to maximize investor returns. While high dividend yields have attracted considerable attention, dividend growth has proven to be a more reliable approach. However, recent research indicates that combining both yield and growth strategies can offer the greatest benefits. The High Dividend Growth Index, which tracks companies with the highest projected dividend yield growth in the broader market and a history of maintaining or increasing dividends for at least five years, has surged nearly 20% over the past year. This performance surpasses that of the Dividend Aristocrats Index, which focuses solely on dividend growth without considering yields.
Investors should thoroughly evaluate what suits their portfolio, as strategies that are effective at one time may not perform well in another. It’s crucial to consider the underlying fundamentals of a company when making investment decisions. In this article, we will take a look at some of the best dividend stocks under $50 according to analysts.
Our Methodology:
For this list, we screened for dividend stocks with share prices below $50, as of the close of August 16. From this group, we picked stocks with a projected upside potential of over 10% based on analyst price targets. We further narrowed down the list by including stocks that have dividend yields of at least 2%, as of August 16. The stocks are ranked in ascending order of their upside potential, as of August 16.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. 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).
Aerial view of a refinery tower surrounded by the sprawling landscape of pipelines in an oil & gas midstream facility.
Enterprise Products Partners L.P. (NYSE:EPD)
Upside Potential as of August 16: 15.53%
Share Price as of the close of August 16: $29.17
Enterprise Products Partners L.P. (NYSE:EPD) is an American midstream natural gas and crude oil pipeline company that provides related products and petrochemicals. Energy companies are known for their generous dividends and EPD stands out as a particularly strong dividend investment. First and foremost, the company’s cash position is very strong to fund its dividends. In the second quarter of 2024, the company reported a distributable cash flow (DCF) of $1.8 billion, which showed a growth from $1.7 billion in the same period last year. Its operating cash flow for the period amounted to $2.1 billion, up from $1.9 billion in the prior-year period. Secondly, the company’s payout ratio is sustainable. For the twelve months ending June 30, the company’s payout ratio—encompassing distributions to common unit-holders and buybacks of partnership common units—was 55% of adjusted cash flow from operations.
Enterprise Products Partners L.P. (NYSE:EPD) gains significant advantages from its business model, which centers on midstream operations involving key infrastructure such as pipelines, storage facilities, and transportation systems. These assets are vital for connecting the upstream sector (drilling) with the downstream sector (refining and chemicals) and for linking to global markets. Midstream companies generally earn revenue by charging fees for the use of their infrastructure, operating as toll-taker businesses. As a result, their financial performance is primarily driven by energy demand rather than energy prices. Because energy demand remains robust even when prices are low, this model offers a degree of stability. In the second quarter of 2024, Enterprise Products Partners L.P. (NYSE:EPD) reported revenue of $13.48 billion, which saw a significant growth of 27% on a YoY basis.
On July 11, Enterprise Products Partners L.P. (NYSE:EPD) declared a 1.9% increase in its quarterly dividend to $0.525 per share. This marked the company’s second dividend hike this year and 26th consecutive year of dividend growth, which places EPD on our list of the best dividend stocks under $50. The stock has a dividend yield of 7.20%, as of August 16.
According to Insider Monkey’s database of Q2 2024, 23 hedge funds invested in Enterprise Products Partners L.P. (NYSE:EPD), which remained unchanged from the previous quarter. The consolidated value of these stakes is roughly $310 million.
Overall EPD ranks 5th on our list of the best dividend-paying stocks under $50. While we acknowledge the potential of EPD 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 EPD 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.