We recently compiled a list of the 10 Unstoppable Dividend Stocks to Buy. In this article, we will have a look at where Vertiv Holdings Co (NYSE:VRT) 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).
Vertiv Holdings Co (NYSE:VRT)
Year-to-Date Return as of September 9: 61.4%
Vertiv Holdings Co (NYSE:VRT) ranks fourth on our list of the best unstoppable stocks that pay dividends. The Ohio-based company provides critical digital infrastructure and continuity solutions. It is reaping the rewards from the swift growth of data centers specifically designed for artificial intelligence. The stock has surged by over 61% in 2024 so far.
Vertiv Holdings Co (NYSE:VRT) continues to witness the growing expansion of AI deployment and has the necessary capacity to capitalize on this crucial opportunity while maintaining its focus on future investments. The company acts as the link between IT and facilities in data centers and is only starting to unlock the vast potential of its unique industry position. By utilizing the most comprehensive portfolio of critical digital infrastructure solutions across the entire range of thermal and power technologies, and backed by a global team of over 3,750 field service engineers, it is well-positioned to assist customers in navigating this increasingly complex landscape.
This was also mentioned by Baron Funds in its Q2 2024 investor letter. Here is what the firm has to say:
“Vertiv Holdings Co (NYSE:VRT) a leading provider of critical digital infrastructure for data centers, contributed during the quarter. As an industry leader in data center cooling and power management, Vertiv is poised to benefit from AI-driven growth in data center spend. The NVIDIA partner network, strong industry relationships, and broad product portfolio that Vertiv maintains enables its participation in the creation of the technology roadmap for the future of the data center. In addition, Vertiv is investing in its capacity to serve this growing end market more effectively. The company also has an extensive global service network to aid customers as they grow. We believe the company has durable competitive advantages and a flexible balance sheet to benefit from the expected significant capital investment in data centers for years to come. Vertiv reported very strong results for the March quarter, with orders up 60%, which highlighted the strong demand it is seeing for its products. We sold some of our position into strength after the runup from the positive report, but still hold a major position in the Fund as we see considerable upside in the shares over time.”
In the second quarter of 2024, Vertiv Holdings Co (NYSE:VRT) reported revenue of $1.9 billion, up 13% from the same period last year. The company’s cash position was also strong as it generated $378 million in operating cash flow during the quarter, showing an increase of $125 million from the same period last year. Its adjusted free cash flow was $333 million, an increase of $106 million from Q2 2023. The cash flow was the result of increased adjusted operating profit and better management of working capital.
Vertiv Holdings Co (NYSE:VRT) started paying dividends in 2020 and has paid regular dividends since then. The company currently offers a quarterly dividend of $0.025 per share and has a dividend yield of 0.13%, as of September 9.
According to Insider Monkey’s database of Q2 2024, 92 hedge funds owned stakes in Vertiv Holdings Co (NYSE:VRT), growing from 85 in the previous quarter. These stakes have a total value of over $3 billion. Among these hedge funds, Coatue Management was the company’s leading stakeholder in Q2.
Overall, VRT ranks 4th on our list. While we acknowledge the potential for VRT 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.
