{"id":51975,"date":"2023-08-23T10:20:30","date_gmt":"2023-08-23T14:20:30","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-fed-will-send-these-safe-dividends-soaring-in-2024\/"},"modified":"2023-08-23T10:20:32","modified_gmt":"2023-08-23T14:20:32","slug":"the-fed-will-send-these-safe-dividends-soaring-in-2024","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=51975","title":{"rendered":"The Fed Will Send These Safe Dividends Soaring In 2024"},"content":{"rendered":"
\n

I know it\u2019s only August, but I\u2019m ready to make my first \u201cdividend prediction\u201d for 2024: utilities\u2014especially growth utilities\u2014<\/em>will surge.<\/p>\n

That means now<\/em> is the time to dust off our parents\u2019 playbook and grab these rock-steady payers before<\/em> the mainstream crowd comes around. When they do, it\u2019ll be goodbye NVIDIA (NVDA)<\/strong> and hello Consolidated Edison (ED)\u2014<\/strong>one of the three stocks we\u2019ll discuss below.<\/p>\n

The Coming \u201cRate Rollover\u201d Just Got Moved Up<\/h2>\n

We\u2019re bullish on utilities now because this economy is bogging out. We got more proof of that last week, with China posting an anemic 0.8% growth rate in Q2.<\/p>\n

You and I both know it\u2019s likely worse than that. (Hands up if you\u2019d wager a cent on the accuracy of Xi\u2019s numbers!) And even though China has been a global black sheep for a while, it\u2019s simply too big to ignore.<\/p>\n

Truth is, China\u2019s slowdown will weigh down growth across the globe, throwing Jay Powell\u2019s rate hikes in reverse\u2014and likely sooner than most folks expect.<\/p>\n

Rate Cuts Will Electrify Utilities<\/h2>\n

<\/fbs-ad><\/p>\n

To be sure, a recession isn\u2019t great news. But we contrarians love<\/em> a pullback because we want dividend deals\u2014<\/em>and it\u2019ll throw a bevy of them our way!<\/p>\n

Utilities are our \u201cearly bird specials\u201d here because they\u2019ve been completely washed out this year, with the benchmark Utilities Select Sector ETF (XLU)<\/strong> down nearly 9% in a year when the S&P 500 has soared some 16%.<\/p>\n

There are a couple of reasons for this. First, utilities carry higher debt than most firms, and rising rates increase their borrowing costs. Second (and more important), as Treasury rates rise, utilities must compete for the conservative income-seekers who are usually the sector\u2019s biggest fans.<\/p>\n

But the coming \u201crate rollover\u201d will flip these headwinds to tailwinds for our favorite \u201cutes.\u201d Never mind that utilities are classic recession plays: their revenues that are all but guaranteed no matter what the economy does. With all this in mind, let\u2019s dive into three names that should be near the top of your list:<\/p>\n

Utility Pick No. 1: Consolidated Edison (ED)<\/h2>\n

ConEd is putting on a masterclass in dividend growth, raising its payout up for 49 straight years while keeping its payout ratio (or the percentage of adjusted income paid out as dividends) between 60% and 70%. That\u2019s above the 50% I like to see, but it\u2019s A-OK for a utility with steady revenues like ConEd.<\/p>\n

The company has 3.6 million electric customers and 1.1 million gas customers in New York and New Jersey and forecasts a 6% yearly increase in its annual base rate through 2025. It\u2019s also benefiting as New York City moves ahead with its commitment to net zero emissions by 2050.<\/p>\n

Here\u2019s the real<\/em> standout about ConEd: after years of issuing shares\u2014a common move for utilities to fund infrastructure expansion and upgrades\u2014the company recently completed a $1-billion share buyback.<\/em><\/p>\n

We love buybacks, especially when a stock is as cheap as this one, trading at just 12.8-times earnings. Repurchases boost earnings per share and speed up dividend growth because they leave management with fewer shares on which to pay out.<\/p>\n

By the way, the stock\u2019s pullback this year\u2014to the tune of about 6.5%\u2014isn\u2019t only giving us a cheap valuation. It\u2019s also letting us lock in a 3.6% yield, as much as ConEd ever pays.<\/p>\n

Utility Pick No. 2: Ameren (AEE)<\/h2>\n

Next time someone tells you utilities are boring, tell them about Ameren, which has 2.4 million electricity clients in Illinois and Missouri. It also has 900,000 gas customers.<\/p>\n

This \u201cboring\u201d utility\u2019s dividend isn\u2019t just growing\u2014it\u2019s accelerating <\/em>and taking its share price along for the ride, a phenomenon I refer to as the \u201cDividend Magnet\u201d:<\/p>\n

That\u2019s a pretty big \u201ctell\u201d on where the payout\u2014and share price\u2014are headed. First up, we can expect the stock to reel in the dividend and take up the gap you see on the right side of the chart above. As it does, it will likely shrink Ameren\u2019s 3.1% yield back near its 2.5% average over the last five years.<\/p>\n

That\u2019s reason No. 1 to give this one a look now.<\/p>\n

Reason No. 2 is that the payout is primed to keep marching higher, pulling the share price up with it. Management said as much in its second-quarter earnings presentation, noting that it expects future dividend hikes to match up with its forecast 6% to 8% earnings-growth forecast.<\/p>\n

Finally, Ameren is aggressively moving to cut emissions, with a goal of achieving net zero by 2045, while at the same time bringing in another 4,700 megawatts of renewable-power production by 2040. These are smart moves as the cost of renewables falls\u2014they also keep the company on the right side of regulators.<\/p>\n

Utility Pick No. 3: American Electric Power (AEP)<\/h2>\n

AEP matches up with Ameren on a lot of levels: it, too, is calling for steady earnings growth (6% to 7% yearly in AEP\u2019s case) with payout growth to match. And it\u2019s leaning hard into renewables, with a goal of hitting net zero by 2045.<\/p>\n

Where it pulls ahead is in scale\u2014AEP boasts some 5.6 million customers across 11 states\u2014and current yield: at 4.2%, it pays you more upfront than our other two utilities do.<\/p>\n

And while you do<\/em> lose out a bit on payout growth here\u2014AEP\u2019s dividend has risen 24% in the last five years, compared to 38% for Ameren\u2014there\u2019s more \u201csnapback\u201d upside with AEP, whose share price has lagged its dividend by much more in this year\u2019s utility washout.<\/p>\n

Finally, AEP\u2019s debt of $44 billion sounds high, but it\u2019s a reasonable 46% of assets. And of course, lower interest rates will reduce its debt burden as these borrowings mature in the coming years. That will likely give the dividend, and the share price, an extra push.<\/p>\n

Brett Owens is chief investment strategist for <\/em>Contrarian Outlook<\/em>. For more great income ideas, get your free copy his latest special report: <\/em>Your Early Retirement Portfolio: Huge Dividends\u2014Every Month\u2014Forever.<\/p>\n

Disclosure: none<\/em><\/p>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

I know it\u2019s only August, but I\u2019m ready to make my first \u201cdividend prediction\u201d for 2024: utilities\u2014especially growth utilities\u2014will surge. That means now is the time to dust off our parents\u2019 playbook and grab these rock-steady payers before the mainstream crowd comes around. When they do, it\u2019ll be goodbye NVIDIA (NVDA) and hello Consolidated Edison […]<\/p>\n","protected":false},"author":1,"featured_media":51976,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-51975","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-markets","tag-featured"],"yoast_head":"\nThe Fed Will Send These Safe Dividends Soaring In 2024 | iFintechWorld<\/title>\n<meta name=\"description\" content=\"I know it\u2019s only August, but I\u2019m ready to make my first \u201cdividend prediction\u201d for 2024: utilities\u2014especially growth utilities\u2014will surge. 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