We recently compiled a list of the 13 Best Dividend Stocks to Buy 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 stocks.
AI stocks are stealing the spotlight today as the appetite for these services continues to gain traction globally. This surge in interest has temporarily diverted investor attention from dividend-paying equities. This year, dividend stocks have once again lagged behind the market, a trend highlighted by Dan Lefkovitz, a strategist at Morningstar Indexes, during a recent interview with the firm. Here are some commeants from the analyst:
“I just want to mention two interesting observations. One, interest rates have come down this year, yet dividend-paying stocks have underperformed. There’s this conventional wisdom that we’ve talked about in the past that falling rates are good for dividend payers and rising rates are bad for dividend payers, yet dividend stocks have underperformed in a falling rate environment. Second, outside of the US, dividend stocks are a little bit ahead of the broad market. We can table those, but I just thought they’re interesting to note.”
That said, analysts predict this trend won’t persist, as dividend stocks are expected to regain their strength and prominence soon. Bank of America analyst Ohsung Kwon suggested that a dividend revival might be on the horizon. His team anticipates a 10% increase in overall dividends from the companies in the broader market in 2025, driven by investors’ growing preference for cash. Highlighting this trend, major tech firms began paying dividends for the first time this year. According to Janus Henderson, these tech giants accounted for roughly 25% of the total underlying dividend growth in the US during the third quarter.
Also read: 10 Best European Dividend Stocks To Buy
When it comes to dividend stocks, analysts consistently recommend prioritizing dividend growth over chasing high yields. Dan Lefkovitz, a strategist with Morningstar’s Index team, emphasized this approach, pointing out that dividend growth is a completely different ball game compared to high-dividend investing. He explained that dividend growth signals a company’s strong competitive position and improving prospects. A dividend-growth portfolio typically mirrors the market more closely in terms of sector exposure and growth-versus-value traits, including metrics like price-to-earnings ratios. While it maintains a value bias, it leans more toward the core market than a high-dividend portfolio.
Over the years, companies with a track record of steadily increasing their dividends have generally outperformed non-dividend-paying firms while experiencing lower volatility. Although dividends are not set in stone and can vary, as seen in the current climate, they have significantly contributed to overall equity returns over time. Between 1930 and 2023, dividends and their reinvestment made up 40% of the annualized total returns in the broader market, with the rest driven by capital gains.
Maintaining steady dividend growth is a demanding goal, as it necessitates exceptional financial stability. For businesses still in their growth phase with relatively lower stock prices, assessing the sustainability of their dividends becomes an essential and simple factor to analyze. This article explores some of the top dividend stocks currently priced under $50.
Our Methodology:
For this list, we used a Finviz stock screener to find dividend stocks trading below $50 as of the close of December 20. From the initial list, we narrowed down the selection to companies that pay regular dividends to shareholders and possess strong dividend policies, ensuring consistent future dividends. From the resultant list, we picked 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s Q3 2024 database of 900 hedge funds and their holdings. These stocks are ranked in ascending order of hedge funds having stakes in them.
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)
Number of Hedge Fund Holders: 25
Share Price as of the Close of December 20: $30.99
Enterprise Products Partners L.P. (NYSE:EPD) is a Texas-based midstream natural gas and crude oil pipeline company that offers petrochemicals and related products. The company has gained traction among investors because of its solid cash position. In the most recent quarter, it generated $2.1 billion in operating cash flow, reflecting a 4% year-over-year increase. Distributable cash flow reached $2 billion, marking a 5% rise compared to the same period last year. Over the twelve months ending September 30, 2024, the company utilized 56% of its Adjusted Cash Flow from Operations (CFFO) for distributions to common unitholders and the buyback of partnership common units.
This cash position has allowed Enterprise Products Partners L.P. (NYSE:EPD) to grow its dividend for 26 consecutive years. On October 2, it declared a quarterly dividend of $0.525 per share, which was in line with its previous dividend. The stock’s dividend yield on December 23 came in at 6.77%.
In addition to its dividend, Enterprise Products Partners L.P. (NYSE:EPD) also reported strong earnings in the third quarter of 2024. The company posted revenue of $13.78 billion, marking a nearly 15% increase compared to the same period last year. However, the revenue fell short of analysts’ expectations by over $97 million. The company’s operating income was $1.78 billion, and net income reached $1.43 billion, reflecting year-over-year growth from $1.7 billion and $1.3 billion, respectively.
Enterprise Products Partners L.P. (NYSE:EPD)’s stability stems from its largely fee-based business model, which reduces its exposure to commodity and spread risks. Approximately 90% of its contracts feature inflation-adjustment provisions. Moreover, the company has consistently taken a conservative stance on leverage, maintained strong distribution coverage, and carefully managed its growth capital expenditures.
Insider Monkey’s database of Q3 2024 indicated that 25 hedge funds held stakes in Enterprise Products Partners L.P. (NYSE:EPD), growing from 23 in the previous quarter. These stakes are worth nearly $316 million in total.
Overall EPD ranks 9th on our list of the best dividend stocks to buy under $5. While we acknowledge the potential of EPD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EPD 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.