We recently compiled a list of the 10 Unstoppable Dividend Stocks to Buy. In this article, we will have a look at where Constellation Energy Corporation (NASDAQ:CEG) ranks among other unstoppable dividend stocks to buy.
It’s undeniable that dividends have played a key role in the market’s returns over the past year. While they hit a rough patch for a bit, these stocks still have plenty of room to grow. Their rising significance is tied to the fact that US companies are boosting their dividend payouts, thanks to strong cash flow. Many US firms, particularly in the tech sector, have substantial cash reserves on their balance sheets. Due to this, several major tech companies have introduced dividend policies this year, sparking renewed interest in dividend stocks.
In addition, with the market shifting away from top-performing stocks and the Federal Reserve likely to reduce interest rates, dividend stocks remain a valuable option for investors seeking solid returns. Dan Lefkovitz, a strategist for Morningstar Indexes, also supported investing in dividend stocks this year. Here are some comments from the analyst:
“Investing in dividend-paying stocks is a good way to participate in equities over the long term. There have been long stretches when the dividend-paying section of the market has outperformed. Eventually, they’ll come back into favor.”
When it comes to dividend stock investing, the attention is often split between high yields and dividend growth. Analysts tend to favor dividend growth, as it offers a more reliable income stream. In contrast, high yields can sometimes be misleading, hinting at potential financial difficulties. A report from RBC Wealth Management highlights that high-yield stocks have been lagging behind those with lower yields this year. By July 2024, stocks yielding less than 1% delivered an average return of 18%, significantly outperforming the 0.9% average return of stocks yielding over 3%. The report also mentioned that the Dividend Aristocrats, companies that have raised their payouts for at least 25 consecutive years, have historically performed well both during and after economic downturns. Their success is built on appealing valuations relative to the broader market and business models that have proven durable in the face of economic uncertainty. Currently, these equities are trading at a trailing twelve-month P/E of 24.95, which indicates confidence in the stability and growth of these companies.
Several reports have highlighted that while dividend growth companies might not deliver instant gratification, they provide significant long-term advantages. Nuveen, an Illinois-based financial planning firm, also expressed a positive view on dividend growth strategies this year, noting their strong historical track record. The report emphasized that companies focused on growing their dividends possess qualities that pave the way for solid performance in the future. Over the long haul, companies that consistently boost or introduce dividends have outpaced other market segments, achieving higher annualized returns with less volatility. While they may not always shine in every market condition, their steady, risk-adjusted returns over time make them a cornerstone for any equity portfolio—truly a case of “slow and steady wins the race.” With that, we will take a look at unstoppable stocks that pay dividends.
Our Methodology:
For this article, we first used a stock screener to identify stocks that have reported positive returns in 2024 so far. From this selection, we chose dividend stocks with year-to-date (YTD) gains of at least 30%, as of the close of September 9. The stocks were then arranged in ascending order of their YTD gains.
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).
Constellation Energy Corporation (NASDAQ:CEG)
Year-to-Date Return as of September 9: 48.5%
Constellation Energy Corporation (NASDAQ:CEG) is a Maryland-based energy company that offers electric power, natural gas, and energy management services. The stock has gained nearly 49% since the start of 2024 due to its solid financial prospects and increasing expectations that tech firms will turn to nuclear energy to power their AI data centers.
Constellation Energy Corporation (NASDAQ:CEG)’s carbon-free nuclear fleet has continued to perform at top industry levels. Alongside the rest of its generation fleet, it is contributing to keeping American families and businesses cool, maintaining a strong US economy, and supporting thriving communities. In the second quarter of 2024, the company reported revenue of $$5.48 billion, up 0.5% from the same period last year.
As the top nuclear power producer in the country, Constellation Energy Corporation (NASDAQ:CEG) stands to gain significantly from the expected increase in electricity demand driven by AI data centers. This boost could further improve the company’s already positive earnings growth outlook. Consequently, the company has raised its full-year 2024 guidance, now projecting adjusted (non-GAAP) operating earnings to range from $7.60 to $8.40 per share.
ClearBridge Investments also mentioned this in its Q1 2024 investor letter. Here is what the firm said about Constellation Energy Corporation (NASDAQ:CEG):
“On a regional basis, the U.S. and Canada was the top contributor for quarter, with U.S. electric utility Constellation Energy Corporation (NASDAQ:CEG) and U.S. rail operator CSX the lead performers. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S., serving states including New York, Illinois, Maryland, Pennsylvania and New Jersey. The company’s combined generation capacity is more than 32 GW and 90% of annual output is carbon free. Constellation has been a beneficiary of AI and subsequent power demand as its 24/7 base load nuclear generation can get premium contracts.”
Constellation Energy Corporation (NASDAQ:CEG), one of the best unstoppable dividend stocks, currently offers a quarterly dividend of $0.3525 per share. The company started paying dividends in 2022 and has raised its payouts twice since then. The stock has a dividend yield of 0.81%, as of September 9.
Constellation Energy Corporation (NASDAQ:CEG) also attracted the attention of elite money managers with 71 hedge funds investing in the company at the end of Q2 2024, up from 54 a quarter earlier, according to Insider Monkey’s database. The stakes held by these hedge funds have a total value of over $3.7 billion.
Overall, CEG ranks 6th on our list. While we acknowledge the potential for CEG to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
