Historically, blue-chip dividend stocks have been good choices for periods of elevated volatility and uncertainty like the one we’re currently experiencing.
Today, let’s look at two ultra-safe dividend stocks that have the potential to protect invested capital now while also giving investors the chance at significant future dividend growth.
Brookfield Renewable
Brookfield Renewable Partners (NYSE:BEP) is a leading producer of renewable energy and operates a large portfolio of solar, wind and other renewable power assets. As of now, BEP shares have a trailing 12-month dividend yield of 6.0%, paying $1.42 per share.
Based on its most recent dividend increase, the stock is expected to deliver $1.49 per share this year. BEP has also delivered decent dividend growth over the last several years, having increased its payout at an annualized rate of nearly 5.5% during the last decade.
Brookfield is coming off of a fairly strong Q1 in which it was able to grow its funds from operations to $315 million, a significant improvement on the $296 million it reported a year earlier. The business also made or committed to $4.6 billion in new investments while also selling around $900 million of its older assets. By making sensible investments in newer infrastructure, Brookfield has the opportunity to increase its efficiency and put itself on track for higher future FFO.
The real appeal of Brookfield Renewable is likely in its potential to grow over the long term. As management noted in its statement alongside the Q1 results, there is a fundamental and growing mismatch between supply and demand for power due to rapid growth in the power needs of data centers and other digital infrastructure.
With many businesses actively trying to reduce their carbon footprints while also meeting these growing power needs, major renewable energy businesses like Brookfield could be in for a period of strong growth ahead.
This ability to capitalize on a major and fundamental macroeconomic trend may partially explain why Brookfield, the parent company of Brookfield Renewable, attracted the attention of billionaire investor Bill Ackman’s Pershing Square Capital late last year. As Ackman himself explained with regard to his fund’s $2.6 billion investment in Brookfield, the company operates assets that are increasingly crucial to the basic functions of the global economy.
While Brookfield Renewable represents only one piece of this larger picture, BEP offers a good way for investors to buy into this portfolio of assets while also receiving a dividend yield more than four times higher than the average of the S&P 500 at the moment.
Realty Income
Realty Income (NYSE:O) is arguably the gold standard when it comes to real estate investment trusts. As of the latest increase that was announced on March 12th, the company has increased its dividend a total of 130x since going public in 1994.
Another somewhat unique aspect of Realty Income is the fact that it pays its dividends monthly instead of quarterly, making it a convenient choice for investors looking for regular income.
Taking that increase into account, shares of O now pay $3.22 annually, equating to an impressive yield of 5.7%. Unlike most businesses that provide such high yields, however, the company’s performance is actually quite strong.
In Q1, for instance, adjusted funds from operations at Realty Income rose 2.9% compared to the previous year to a total of $1.06 per share. Total revenue also increased, rising to $1.38 billion from $1.26 billion in the year-ago quarter.
Realty Income could also still have room for significant growth ahead of it as the company continues to invest in new real estate opportunities. Returning to the Q1 results as an example, Realty Income invested $1.4 billion with an expected cash yield of 7.5%.
Provided the company executes in the disciplined manner it historically has when it comes to pursuing new investments, there could be plenty of new opportunities for it to deploy capital and expand its AFFO in the years to come.
At first glance, O shares may look questionable from a valuation perspective due to being priced at 51.2x earnings and 9.2x sales. Although the P/E ratio is a bit high by historical standards at the moment, it’s worth noting that the ratio hasn’t dipped below 30 since 2020. The dividend yield is also more or less in line with the standard it has set throughout the first half of this decade.
Finally, analysts still forecast an upside of about 9.5% from O over the coming 12 months. Taken together, these facts suggest that Realty Income is probably more or less fairly valued and may not have much trouble maintaining its fairly high P/E ratio.
Finally, it’s worth considering that Realty Income could be a good asset to own during what could be a tumultuous time in the broader economy. It mainly leases its real estate to financially stable customers in businesses that are somewhat insulated from economic downturns.
The top three customers leasing from Realty Income, for example, are 7-Eleven, Dollar Tree and Walgreens. This strategy has allowed Realty Income to keep raising its dividends even during the downturns associated with the Great Recession.
Ultra Safe Dividend Stocks to Buy Now
Both Brookfield Renewable and Realty Income have strong arguments to be made for them thanks to yields of 6.0% and 5.7%.
To a large degree, the better stock between the two may depend on one’s investment goals and strategy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.