Have recent acquisitions helped these dividend stocks gain significant momentum?

We recently made a list Top 12 Dividend Stocks Under $25In this article, we’ll take a look at where Energy Transfer LP (NYSE:ET) stacks up against other dividend stocks under $25.

Dividend stocks have remained important to investors, standing the test of time regardless of market conditions. Dividends have historically contributed about one-third of the market’s total return since 1960. Among dividend strategies, investors tend to favor those that emphasize dividend growth over high yields. One of the main reasons for this inclination is that when these companies show more tangible results, investors gain confidence in seeing improvements in free cash flow, earnings, and dividend growth during a recovery, compared to more speculative options. Additionally, as interest rates decline with Federal Reserve rate cuts in an economic recovery, yield-oriented investors shift their investments from cash to dividend-paying stocks.

According to analysts, due to the unstable economic conditions since 2020 and the ongoing market uncertainty affecting corporate earnings, high-yielding companies lacking strong financial stability and discipline may face challenges in maintaining future dividend payments. These companies could face potential dividend cuts or suspensions. On the other hand, dividend growth strategies have proven effective during periods of rising and falling interest rates. The Dividend Aristocrats Index, which tracks the performance of companies with at least 25 consecutive years of dividend increases, returned 14.26% during the period of falling interest rates from May 2005 to March 2024, while high-dividend stocks underperformed, exceeding a 10% return, according to a ProShares report. Similarly, during the period of rising interest rates during this period, growing dividend stocks returned 10.26%, and high-dividend stocks returned 9.22%. To learn more about dividend stocks, readers should check out Dividend Zombies and Kings with Longest Dividend Payouts.

Dividend growth strategies offer potential solutions to the challenges that high-dividend stocks face in a rising interest rate environment in two key ways. Prioritizing dividend growth over high yield makes dividend growth stocks less susceptible to the value factor that typically affects high-dividend companies. This resilience allows dividend growth stocks to outperform in growth-oriented markets.

Given investors’ preference for dividend-paying companies, companies around the world have consistently rewarded shareholders with dividends. According to Janus Henderson, dividends rose 5% in 2023 to $1.66 trillion, marking the third consecutive year of record growth after a brief dip in payouts during the pandemic in 2020. The fund manager expects total dividends to reach a new peak of $1.72 trillion, up 3.9% overall. The payouts suggest that balance sheets remain strong despite the global economic slowdown and increased debt-servicing costs. They also underscore the benefits of higher interest rates for the banking sector. Almost half of the dividend growth last year came from banks, which rewarded shareholders after reporting a significant increase in lending profits.

The story continues

Our methodology:

For this list, we used a stock screener to find dividend stocks trading below $25 as of June 21. From our initial list, we selected companies with dividend yields above 2% and a history of consistent dividend payments, indicating sustainable dividends. Finally, we narrowed it down to the 12 stocks that had the most hedge fund investors, according to Insider Monkey data, through the first quarter of 2024. Hedge funds are not dividend investors; they invest in stocks for capital gains. Essentially, our list highlights the best dividend stocks under $25 that have the potential to generate large capital gains. Why are we interested in stocks that hedge funds invest in? The reason is simple: Our research has shown us that we can outperform the market by mimicking the top stock picks of top hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Aerial view of an oil rig at sunrise, highlighting the power of the natural gas transportation industry.

Energy Transfer LP (NYSE:ET)

Number of hedge fund holders: 32

Share price as of June 21: $15.7

Energy Transfer LP (NYSE:ET) is a Texas-based company that is engaged in the transportation, storage, and distribution of natural gas, natural gas liquids, crude oil, and refined products. This is one of the best dividend stocks on our list because the company has raised its payout for ten consecutive years. It currently offers a quarterly dividend of $0.3175 per share and has a dividend yield of 7.98%, as of June 21. The company’s future dividends are safe due to its strong cash position. In the most recent quarter, its distributable cash flow (DCF) was $2.36 billion, up from $2.01 billion in the same period last year.

Energy Transfer LP (NYSE:ET) has leveraged acquisitions to gain significant momentum, setting the stage for expected earnings growth of about 10% this year. It recently announced plans to acquire WTG Midstream Holdings from subsidiaries of Diamondback Energy (FANG), Stonepeak and Davis Estate for approximately $3.25 billion. The acquisition is intended to increase the company’s access to growing natural gas and natural gas liquids volumes, which will particularly benefit its operations in the Permian Basin and downstream sectors. Additionally, the company successfully completed two major transactions last year, further strengthening its strategic position in the market.

New growth projects and acquisitions had a significant impact on Energy Transfer LP’s (NYSE:ET) asset volumes. In the first quarter of 2024, the company reported a 44% increase in crude oil transportation volumes and a 10% increase in crude oil terminal volumes. Almost all of the company’s segments grew in the quarter. Adjusted EBITDA reached almost $4 billion, up more than 13% from the same period last year. In fiscal 2024, the company expects to generate between $15 billion and $15.3 billion in adjusted EBITDA.

Energy Transfer LP (NYSE:ET) had 32 hedge funds holding shares in Q1 2024, up from 34 in the previous quarter, according to Insider Monkey’s database. Those holdings are worth nearly $930 million in total. With more than 17.8 million shares, Abrams Capital Management was the top shareholder in the company in Q1.

Total ET takes 4th place on our list of the best dividend stocks to buy under $25. You can visit Top 12 Dividend Stocks Under $25 to see other dividend stocks that are on the hedge fund radar. While we recognize ET’s potential as an investment, our belief is based on the belief that some deeply undervalued dividend stocks have more promise to deliver higher returns and do so in a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than ET but is trading at less than 7 times earnings and yielding almost 10%, check out our report on very cheap dividend stocks.

READ NEXT: Analysts see a new $25 billion ‘opportunity’ for NVIDIA and the 10 best stocks to buy in Q3 2024, according to Bank of America.

Disclosure: None. This article was originally published on Insider Monkey.