A Chevron gas station in Richmond, California, USA, on Wednesday, June 19, 2024.
David Paul Morris | Bloomberg | Getty Images
Adding dividend stocks to a portfolio helps increase overall returns while providing income and diversification. Additionally, the attractiveness of dividend stocks increases as interest rates fall, as is currently the case.
Following the recommendations of leading Wall Street analysts can help investors select attractive dividend stocks because these experts conduct an in-depth analysis of a company's financials to assess its ability to pay — and raise — dividends.
Here are three dividend stocks highlighted by Wall Street's top pros, tracked by TipRanks, a platform that ranks analysts based on past performance.
Chevron
We start this week with the oil and gas producer Chevron (CVX). The company reported better-than-expected results for the third quarter of 2024. In the third quarter, it returned $7.7 billion to shareholders, including $4.7 billion in share repurchases and $2.9 billion in dividends. With a quarterly dividend of $1.63 per share (or annualized $6.52), CVX offers a dividend yield of 4.1%.
Recently, Goldman Sachs analyst Neil Mehta reiterated his Buy rating on CVX and slightly increased the price target from $167 to $170 to reflect his updated earnings estimates. The analyst remains positive on Chevron thanks to “expectations for volume and.” [free cash flow] Inflection driven by Tengiz [in Kazakhstan]where the company continues to demonstrate strong progress in execution.”
Mehta added that his optimism is also driven by Chevron's attractive return on capital profile, which includes dividends and buybacks, with a return of around 10% expected in 2025 and 2026 in a volatile macroeconomic environment.
Among other positives, Mehta also pointed to positive news on Chevron's Gulf of Mexico projects, where the company aims to increase production to 300 Mb/d (million barrels per day) by 2026. He is also impressed by the company's targeted cost reduction efforts, aiming to achieve up to $3 billion in structural cost savings by the end of 2026.
Mehta is ranked #391 among more than 9,200 analysts tracked by TipRanks. Its valuations were profitable 62% of the time and delivered an average return of 11%. See Chevron stock buybacks on TipRanks.
Energy transfer
This week's second dividend pick is Energy Transfer (ET), a midstream energy company structured as a limited partnership. In November, the Company made a quarterly cash distribution of $0.3225 per common unit for the third quarter, an increase of 3.2% year over year. Based on an annual distribution of $1.29 per common unit, ET pays a yield of 6.8%.
JPMorgan analyst Jeremy Tonet recently reiterated a Buy rating on ET and increased his 12-month price target to $23 from $20. The analyst noted that the company's third-quarter adjusted earnings before interest, taxes, depreciation and amortization of $3.96 billion beat JPMorgan's estimate of $3.912 billion and the Street consensus of $3.881 billion .
While Energy Transfer reiterated its full-year adjusted EBITDA guidance in the range of $15.3 billion to $15.5 billion, Tonet believes the company is capable of exceeding the high end of that guidance given The outlook does not reflect the full impact of its optimization efforts.
Tonet also emphasized that the integration of the WTG Midstream acquisition is on track and Energy Transfer has approved several projects to improve reliability, reduce losses and increase system efficiency.
Overall, Tonet believes that ET is trading at a discounted price, providing a lucrative entry point for investors. “We’ll see [natural gas liquids] especially logistics [U.S. Gulf Coast] and Marcus Hook exports as key growth drivers for ET, particularly given the global increase in LPG demand,” said Tonet.
Tonet is ranked #420 among more than 9,200 analysts tracked by TipRanks. His reviews were successful 61% of the time and delivered an average return of 10.5%. See Energy Transfer stock charts on TipRanks.
Enterprise Products Partner
Tonet is also bullish on Enterprise Products Partners (EPD), a partnership that provides midstream energy services. The company's third-quarter distribution of $0.525 per unit reflects an annual increase of 5%. EPD's annual distribution of $2.10 per common unit represents a yield of 6.4%.
The JPMorgan analyst said EPD's third-quarter performance benefited from three natural gas processing plants that began commercial operations last year. The third quarter also benefited from large natural gas spreads between Waha and other market centers.
At its investor day, EPD emphasized that one of its key operational goals for 2024 is to improve the reliability and utilization of its two propane dehydrogenation (PDH) plants. Tonet said EPD expects its PDH improvements to deliver $200 million in additional cash flow.
Capital allocation is favorable, Tonet said, noting that EPD repurchased $76 million worth of shares in the third quarter, up from $40 million in the second quarter. Enterprise plans to continue making repurchases in the annual range of $200 million to $300 million throughout 2024 and 2025, he said.
Tonet remains bullish on EPD stock, saying the company has “consistently delivered strong results across various cycles, weathering downturns while still participating in upcycles.”
Tonet's optimism is also based on the fact that EPD has the largest and most integrated natural gas-liquids (NGL) presence in North America, supporting excellent operating leverage. He also believes that financial flexibility gives EPD an advantage over its competitors.
Given all the positives, Tonet reiterated his Buy rating on EPD stock and increased his price target to $37 from $34. See EPD ownership structure on TipRanks.