While the dog days of summer have many of us pouring iced coffees and teas to keep us cool, there’s another type of flow that investors may actually be yearning for: the steady flow of dividends. With the S&P 500 climbing more than 20% year to date — and seeming to frequently hit new all-time highs — it may feel like it’s harder and harder to identify bargains in the marketplace. But don’t despair — there are always values to be found. And in this case, the attractive price tags are tied to three dividend-paying stocks…
Representing different industries, Brookfield Renewable Partners (NYSE:BEP), Covanta Holding (NYSE:CVA), and Southern Copper (NYSE:SCCO) are all dividend-paying stocks that I’d gladly add to my portfolio when I can.
A renewable energy powerhouse
With a geographic footprint that extends onto four continents, Brookfield Renewable Partners is a limited partnership that has a portfolio of assets representing over 17,400 megawatts of capacity. And while the company proclaims itself as a global leader in hydroelectric power, investors shouldn’t be fooled into thinking that the company’s prowess ends there; wind, solar, distributed generation, and storage account for 25% of its portfolio.
There are several reasons Brookfield Renewable Partners currently seems attractive. For one, the stock has an enticing dividend yield of 5.74%. Often, a high yield can be a sign that a company’s financial health is in jeopardy; in this case, it doesn’t apply. In fact, Brookfield Renewable Partners has an investment-grade balance sheet, which should allay investors’ concerns regarding the company’s ability to safely reward shareholders while servicing its debt. From the stock’s debut in 2011 through 2019, the company has raised its annual distribution at a 6% compound annual growth rate, and according to an investor presentation, it has targeted future distribution growth at 5% to 9%. Currently, the stock appears attractively priced at 5.6 times operating cash flow, a bargain versus its five-year average multiple of 6.4, according to Morningstar.
Turning trash into cash
Covanta is an industry leader in environmental solutions. It develops, owns, and operates a network of solid- and liquid-material processing and recycling sites and 40 energy-from-waste (EfW) facilities across the United States.
On the other side of the Atlantic, Covanta has an EfW facility in Dublin, with several more in varying phases of development throughout the United Kingdom. Demonstrating its industry-leading position, Covanta estimates that the U.S. produces about 400 million tons of waste annually, 7% of which ends up in EfW facilities. And of this 7%, Covanta controls about 75% of the market.
Why would I be so eager to pick up shares of Covanta? In 2018, the company generated $100 million in free cash flow, and management forecasts the company will generate free cash flow of about $133 million in 2019, rising to $250 million annually in the mid-2020s. This strong cash flow growth provides management with the potential to cover and grow its dividend in the coming years. Already attractive, Covanta’s dividend currently offers a 5.80% yield. And on the recent Q2 conference call, management reaffirmed its pledge to reward shareholders through its dividend policy.
Trading at a price-to-operating cash-flow ratio of 8.4, Covanta may not appear that compelling, considering its five-year average ratio is also 8.4, according to Morningstar. But the stock seems attractively priced by other metrics. For one, it trades at 15.5 times earnings, which is well below its five-year average of 37.4. And it trades at 1.2 times sales — a shade below its five-year average of 1.3…
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