Dividend stocks can offer a safe haven during times of market turmoil, providing regular (sometimes rising) income and the potential for capital gains.
David Harrell, editor of the Morningstar Dividend Investor newsletter, has offered a trio of the firm’s favorite dividend stocks, or “three dividend stocks for November,” as he put it.
Two are utility stocks that represent Morningstar’s top two picks in the sector, and the other is a cellphone-tower real estate investment trust (REIT).
All three have a Morningstar moat rating of narrow, which means the firm believes they have competitive advantages that will last at least 10 years.
Entergy
ETR
Morningstar fair value estimate: $120. Wednesday price quote: $96.05.
Entergy is one of the country’s biggest power producers, with five regulated, integrated utilities in Arkansas, Louisiana, Mississippi, and Texas. It has a forward yield of 4.6%.
The company left its dividend unchanged from 2010 to 2015 and then began raising the payout by about 2% each year. More recently, it provided increases of 6% in both 2021 and 2022. And last month, it declared a 5.6% rise.
Morningstar analysts expect future increases to track earnings growth, which they forecast at 7% annualized over the next five years.
NiSource
NI
Morningstar fair value estimate: $33. Wednesday price quote: $24.85.
NiSource is one of the country’s largest natural gas distribution companies. It transmits and distributes electricity to 500,000 customers in northern Indiana.
The company has a 3.99% forward dividend yield, with a 6.1% annualized dividend growth rate over the past five years. That rate of growth should continue, with a payout ratio of around 60%, for at least the next three years, Morningstar analysts said.
The payout ratio is the dividend-per-share number divided by profit per share.
While this is a higher payout ratio than many of its peers, Morningstar analysts believe that NiSource has “enough financial flexibility and constructive rate regulation” to support it.
American Tower
AMT
Morningstar fair value estimate: $225. Wednesday price quote: $183.50.
American Tower owns and operates more than 220,000 cellphone towers in the U.S., Asia, Latin America, Europe, and Africa. It also owns and operates 28 U.S. data centers.
American Tower has provided strong dividend growth over the past five years, at an annualized rate of 17.5%. It has raised its dividend with almost every quarterly payout since 2012, Harrell noted.
“However, Morningstar analysts expect a somewhat lower growth rate, in the low double digits annually going forward, as the REIT pays down debt,” he said. American Tower management has committed to an annualized dividend growth rate of 10%.
The stock has a forward yield of 3.49%.
The author of this story owns shares of American Tower.
