He S&P 500 Index and Dow Jones Industrial Average are less than 1% from their all-time highs, while Nasdaq Composite Index The company's stock price is down less than 5% from its peak. And yet there are still plenty of stocks trading well below their peak prices and many that have lost ground so far this year.
These stocks include oil and gas exploration and production companies. Devon Energy (NYSE: DVN)package delivery giant Unified parcel service (NYSE: UPS)and electrification technology company nVent Electric (NYSE: N/A). But these fool.com contributors believe that these three dividend stocks They are worth buying now.
Devon Energy offers high yields and takes a conservative approach to its payouts.
Scott Levine (Devon Energy)): When a stock falls, investors naturally want to know if there is something fundamentally wrong with the company that underpins the market’s skepticism. That’s certainly a question worth asking about Devon Energy, as its shares are currently trading 19% below their 52-week high and 64% below their all-time high. But even a cursory glance at the exploration and production company shows that it is performing well and that the stock’s decline is not based on anything catastrophically bad. Accordingly, investors with longer investment horizons can wait patiently while the stock recovers, collecting the passive income provided by a dividend that yields 4.5% at the current share price.
Devon Energy’s sharp drop in stock contradicts the strong second-quarter financial results it recently shared. Beating its guidance, Devon Energy achieved daily oil production of 355,000 barrels, thanks to unexpectedly good results in the Delaware Basin. In addition, thanks to the company’s strong performance in the first half of the year and its planned acquisition of Grayson Mill in the third quarter, management revised up its 2024 production guidance to more than 680,000 barrels of oil equivalent per day, a 5% increase from the original guidance.
Devon splits its dividend payments into fixed and variable distributions. In general, management aims for the fixed amount to equal approximately 10% of the company's operating cash flow and the variable amount to be based on a variety of other factors. Generally speaking, however, management aims to return approximately 70% of free cash flow to investors, a cautious approach that will not jeopardize the company's financial well-being.
For investors looking for dividend payments at a steady pace, Devon Energy is not the best choice, as its payouts are based on its performance. However, those who are comfortable reaping the benefits when the company is strong (and enduring temporary dips when it is not) should consider buying shares.
UPS has an attractive dividend
Daniel Foelber (UPS): Shares of the package delivery giant surged during the pandemic as large numbers of consumers shifted much of their shopping from brick-and-mortar stores to online ordering. But the stock is now down 45% from its all-time high and hovering around 100%. minimum of four years.
UPS thought the growth in demand for its services would last. It didn't.
Earlier this year, UPS lowered its previously optimistic forecast and laid out a more realistic path based on a gradual increase in package delivery demand and a new three-year plan. Now, UPS must deliver on its promises. So far, it hasn't.
The logistics giant has only been implementing this new plan for half a year and its results have already been disappointing. The good news is that UPS expects to return to profit growth in the second half of the year. In its second-quarter earnings presentation, management also stressed that its year-to-date performance was greatly affected by the anticipation of certain costs from the new labor contract it signed a year ago with its largest union. But given the company's consecutive profit losses, it is understandable that investors are not giving it the benefit of the doubt, hence the dismal performance of its stock.
There’s no way to sugarcoat the fact that UPS is facing an identity crisis. It hasn’t yet found a footing for its new normal, and investors have lost faith in management’s ability to forecast demand trends — a problem, given that poor forecasting can result in excessive labor and fuel costs or missed opportunities.
Despite the uncertainty, there are reasons to believe that UPS stock has fallen far enough. The stock trades at a price-to-earnings ratio of just 20.9, which is already reasonable. But this is an especially attractive valuation given that its earnings have been falling for more than two years and its trailing 12-month earnings are now roughly the same as they were five years ago.
If UPS can return to growth in the coming years, we could view this as a prime buying opportunity. Some investors may want to wait for concrete signs that UPS is turning a corner, but those willing to buy into UPS now will benefit from a dividend yielding 5.1% at the current share price, providing a worthwhile incentive to hold onto the stock and endure this volatile period.
nVent's electrifying future
Lee Samaha (Electric nVent): Shares of this electrical protection and connection solutions company are down 22.7% from their recent all-time high, and I think selling it has created a decent buying opportunity for an attractive long-term story.
nVent’s products – enclosures, power and fastening solutions – are one way to tap into the “electrification of everything” megatrend. There is no data center, renewable energy, industrial automation, 5G communications or smart buildings/infrastructure without power infrastructure, and that means investments in the type of solutions nVent sells.
As such, the stock represents an indirect way to capitalize on an interesting thematic trend. Moreover, management is strengthening the company’s exposure to this theme through acquisitions and divestitures. Over the past month, nVent completed the $695 million acquisition of custom-engineered building control solutions company Trachte. Additionally, nVent announced the $1.7 billion divestiture of its mission-critical electrical thermal management solutions business.
As CEO Beth Wozniak noted on the company's second-quarter earnings conference call, “The addition of Trachte further strengthens our solutions in high-growth verticals, with approximately 85% of its sales in energy, data center and renewable energy companies.”
nVent’s second-quarter results were quite strong, and management continues to expect full-year organic sales growth of 3% to 5%, with adjusted earnings per share in the range of $3.23 to $3.29. On that basis, it trades at just over 20 times estimated earnings.
While the 1.2% dividend yield is nothing to write home about, its $0.76 per share payout is well covered and gives management plenty of room to make significant increases in the future.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool has a Disclosure Policy.
Despite falling between 22% and 64% from their highs, these 3 dividend stocks are worth buying in September Originally published by The Motley Fool