We recently compiled a list of the 10 Best Beaten Down Dividend Stocks to Invest in Now. In this article, we are going to take a look at where NextEra Energy Partners, LP (NYSE:NEP) stands against the other beaten down dividend stocks.

Dividend stocks have faced challenges over the past year due to the rising focus on tech stocks. However, the value of income remains strong, and investors haven’t overlooked dividend equities. As a result, US companies are now more focused on dividends, offering substantial payouts to shareholders. In fact, many tech companies have begun issuing dividends this year, thanks to strong cash flow on their balance sheets. While they could reinvest in growth, sharing profits with shareholders has become an appealing strategy to attract investors.

This means that with the changing market dynamics, high-quality companies with strong balance sheets that are trading at lower multiples have become more appealing. Dividend stocks often fall into this category, as they typically have stable business models and cash flows that allow them to consistently return earnings to investors. Dan Lefkovitz, a strategist for Morningstar Indexes, also highlighted this in the firm’s latest report:

“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. Dividend-paying stocks have a value bias. To the extent that there’s a rotation away from technology and growth into the value side of the market and more old economy sectors, that’s going to benefit the dividend-paying portion of the market.”

Another factor influencing the market trends is the Fed’s anticipated rate cuts. Investors believe the Fed is likely to start lowering interest rates in September, marking the beginning of a new easing cycle after one of its most aggressive tightening phases. The central bank began raising rates in March 2022 in response to soaring inflation, and they’ve remained at restrictive levels since July 2023. According to popular belief, dividend investors might benefit as rates decline. Lower rates can reduce bond yields, making dividend yields more appealing by comparison. In addition, companies with higher debt, such as utility companies and REITs, often benefit from falling rates and are typically among dividend payers.

If we set aside the impact of interest rates on dividend stocks, it becomes clear that they have made a substantial contribution regardless of market conditions. According to a study by S&P Dow Jones Indices, from 1926 to July 2023, dividends accounted for 32% of the broader market’s monthly total return, with the rest coming from capital appreciation. The report also underscored the power of compounding dividends. Without dividends, an initial investment in the stock market on January 1, 1930, would have grown to $214 by July 2023. However, with dividends reinvested, that same investment would have soared to $7,219 over the same period.

While there are encouraging signs for dividend stocks, they have struggled to keep pace with the broader market this year. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend growth, has gained nearly 9% in 2024, compared with over 16.5% return of the broader market. With this, we will take a look at some of the best beaten down dividend stocks to invest in.

Our Methodology:

To compile this list, we began by examining stocks that have experienced a decline from their peak prices within the past three years. From this pool, we selected 10 dividend-paying stocks that have witnessed a drop of 25% or greater in their share prices over these three years. The rankings within the list are based on the extent of the decrease in share prices from their three-year highs to their current levels, with the list arranged in ascending order of these declines as of August 30, 2024.

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).

NextEra Energy Partners, LP (NYSE:NEP)

3-year high-to-low share price decrease as of August 30: 71.1%

NextEra Energy Partners, LP (NYSE:NEP) is an American master limited partnership (MLP), based in Florida. The company mainly focuses on the acquisition of clean energy projects. The company is encountering challenges with its convertible equity portfolio financings (CEPF) used to fund acquisitions and meet its dividend goals. Analysts anticipate a possible dividend reduction. They believe that the company needs to secure a private capital solution to rebuild confidence in its ability to grow and sustain its distribution over the long term. The stock is down by over 19% since the start of 2024 and in the past 12 months, it has fallen significantly by over 48%.

Another factor contributing to expectations of a dividend cut is that NextEra Energy Partners, LP (NYSE:NEP) has lowered its dividend growth rate to 5% to 8% annually with a goal of 6% per year, from the previous rate of 12% to 15%. However, NEP can still be considered a strong dividend payer, as even its revised dividend growth rate remains impressive for a high-yield stock.

On July 24, NextEra Energy Partners, LP (NYSE:NEP) declared a 1.4% hike in its quarterly dividend to $0.905 per share. The company has been growing its dividends consistently every quarter since 2015, which makes NEP one of the best dividend stocks. Its strong cash generation is a key factor behind its consistent dividend growth. In the second quarter of 2024, the company’s cash available for distribution (CAFD) grew to $220 million, from $200 million in the same period last year. In the first six months of the year, its operating cash flow rose to $309 million, from $296 million in the prior-year period. The stock’s dividend yield on August 30 came in at 14.49%.

Insider Monkey’s database of Q2 2024 indicated that 20 hedge funds held stakes in NextEra Energy Partners, LP (NYSE:NEP), up from 18 in the previous quarter. These stakes have a consolidated value of over $71 million.

Overall NEP ranks 3rd on our list of the best beaten down dividend stocks to invest in now. While we acknowledge the potential for NEP 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 timeframe. If you are looking for an AI stock that is more promising than NEP 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.