Dividend investors looking for opportunities now should start with companies that have a strong track record of increasing dividends. After that, you need to look for stocks with historically high yields. This suggests the stock may be trading at an attractive price. Here are his three stocks that passed both of these screens: hormel food (NYSE:HRL), black hills corporation (NYSE:BKH)and enbridge (NYSE:ENB). Let's take a quick look at the business of each of these historically low dividend stocks.
1. Hormel isn’t firing on all cylinders.
Hormel Foods is perhaps best known for making Spam, but it owns a large collection of segment-leading brands. The food maker's 3.5% dividend yield is near the highest in its history, suggesting the stock is a bargain. This is not a short-term thing. The company has been struggling for several years. However, this hasn't stopped the Dividend King from increasing its dividends, and its consecutive dividends have now reached 57 years.
The good news is that none of the issues facing Hormel are likely to be permanent headwinds. For example, it has not been as successful as its peers in passing on cost increases through price increases. Time will tell. The company's turkey business has been hampered by a tough bird flu environment, and this is also likely to be a temporary issue. China's economic recovery has been slower than expected, and this should resolve itself over time. And while the company's Planters brand caters to a tough nut market, its business is outperforming its peers. Overall, Hormel is struggling, but none of these challenges appear to change the long-term story for this reliable dividend payer.
2. The Black Hills will slow down in 2023
Black Hills, a regulated utility company, has increased its dividend for 53 consecutive years, making it the Dividend King. At 4.6%, the stock's yield is near its highest level in the past decade, suggesting the stock's current price is attractive. However, many investors may have never heard of it, as it is a relatively small utility with a market capitalization of just $3.6 billion. On the other hand, one reason the yield is so high is that 2023 was a reset year of sorts, as the company shifted cash from capital spending to debt reduction. Rising interest rates were a big part of that decision, but capital spending is expected to pick up from 2024 onwards.
That being said, there are a few things I like about this utility. First, it's not exciting, but it's very reliable. Its status as the Dividend King proves this. But the fact that Black Hills is a regulated utility helps. This means that fees and spending plans must be approved by the government. This limits upside potential, but generally leads to slow and consistent growth over time. Second, the region in which the company operates is experiencing customer growth nearly three times faster than the U.S. population. Despite a short-term slowdown in capital spending, the growing customer base suggests a bright future for Black Hills.
3. Enbridge operates a diversified energy business
North American midstream giant Enbridge has been increasing its dividend for “only” 28 years. This is a short streak compared to Hormel and Black Hills, but very impressive when compared to other stocks on the stock market. Meanwhile, the company's yield is historically high at 7.3%.
Enbridge owns the infrastructure that helps transport oil and natural gas around the world, including pipelines, storage, and transportation assets. It also owns natural gas utilities and renewable power assets. All of these businesses provide reliable cash flow, whether due to fees, regulations, or long-term contracts. Therefore, even highly volatile energy prices won't have a big impact on Enbridge, because it's the demand for its assets that matters, not the price of the goods flowing through them. One thing investors need to understand about Enbridge is that yield will likely account for a large portion of its earnings, as growth opportunities are limited in the midstream space. But if you want to maximize the income you generate from your portfolio, that probably won't be a problem.
There's no need to rush, but don't be lazy
The issues that drove the yields of these three dividend stocks to historic highs aren't going away anytime soon, so you have time to dig deeper and understand them before you hit the buy button. But don't put them off. Hormel, Black Hills, and Enbridge are all well-managed companies that will likely eventually be valued again by Wall Street. And when that happens, yields will fall and they won't look as cheap as they do now.
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Reuben Gregg Brewer holds positions at Black Hills, Enbridge and Hormel Foods. The Motley Fool has a position in and recommends Enbridge. The Motley Fool has a disclosure policy.
3 Incredibly Cheap Dividend Stocks was originally published by The Motley Fool