3 Dividend Growers That Fly Under the Radar
With fresh warning signs about the economy top of mind for many investors, it's understandable that many are turning toward more defensive plays. Some forecasts have shown gold continuing to skyrocket, for example, driving investors to seek safe havens in case trust in the Fed should fall. Another increasingly appealing option may be dividend stocks, which tend to be established, non-flashy companies with solid operations and stability.
The dividend landscape is larger than many investors may realize, and names outside of the most popular dividend plays—The Coca-Cola Co. (NYSE: KO) or Johnson & Johnson (NYSE: JNJ), for example—are worth considering.
This may be especially true of firms with a history of dividend increases (a sign that fundamentals have been strong for an extended period of time) and analyst support or upside potential. Below, we profile three companies representing both of these achievements.
Earnings Beat and M&A Activity Help to Boost Pentair's Appeal
Pentair plc (NYSE: PNR) manufactures water treatment, filtration, and purification systems and related items for residential, commercial, and industrial uses. In the latest quarter, reported in July, the company beat analyst predictions on both earnings and revenue. Though revenue gains were modest, improvements to profitability were more substantial. An improving tariff landscape for Pentair and margin gains were key to this growth.
The company has also made some strong strategic acquisitions in recent quarters, including water isolation solutions provider Hydra-Stop. This M&A activity is likely to expand Pentair's reach and diversify its offerings. The company's record $596 million in free cash flow for the second quarter gives it ample leeway to continue expanding in this way going forward.
On the dividend side, Pentair's yield of 0.89% is far from the highest, but it has a strong record of increases over the last seven years and a healthy dividend payout ratio just above 27%. What's more, analysts view PNR shares positively—12 out of 16 call the company a Buy, and collectively they predict modest upside potential of about 3% going forward.
Midstream Stability and Nearly 3 Decades of Dividend Increases for Enterprise
Midstream energy giant Enterprise Products Partners L.P. (NYSE: EPD) transports, stores, and processes a wide variety of energy products both on and offshore. With a market cap of nearly $69 billion, Enterprise is one of the leaders of the midstream segment, and it benefits from the relative stability of this portion of the oil and gas industry, particularly compared to exploration and production companies.
The stability of midstream infrastructure has led Enterprise to increase its dividend consistently over the last 28 years while also making a very high yield of over 6.85% possible. Though the payout ratio is also high at 81%, Enterprise has nonetheless been able to buy back some $1.3 billion in shares through its latest repurchase program.
Crucially, the company continues to expand its operations and metrics, moving over 1 million bpd of refined products and petrochemicals and setting new company records for processing and transporting.
With volume-related fee-based business driving most of its operations, the company has the flexibility to adjust based on inflation. It is less dependent upon the price of oil than many other firms in the sector.
Enterprise has also remained disciplined in managing its balance sheet and currently has a debt-to-equity ratio of just 1.04. Ten out of 15 analysts have rated it a Buy, and based on consensus estimates, the company is expected to have about 13% upside potential.
Compelling Dividend Profile for Packaged Food Producer Lamb Weston
Food giant Lamb Weston (NYSE: LW) is one of the largest potato products companies globally. The company's shares have trended downward over much of the last two years and have fallen by about 15% year-to-date (YTD).
While the company's fiscal fourth quarter, reported in July, was stronger than analysts had expected—thanks to volume and net sales growth and successful cost-cutting measures—investors will be watching the next report in late September for a better idea of whether this trend is sustainable.
Nonetheless, despite some challenges due to reduced restaurant demand in recent months, Lamb Weston's dividend remains strong. The company pays an attractive yield of 2.59% with a sustainable payout ratio of around 59%, and it has a seven-year history of disbursement increases.
Although analysts remain cautious, with a majority rating LW shares a Hold, the company is also forecast to have upside potential of nearly 16% after its recent slump.
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