Value stocks with attractive dividend yield levels can optimize investment portfolio and could result in long-term success as the stocks provide regular stream of earnings, stable value, and long-term growth prospects.
Against this backdrop, it could be wise to invest in fundamentally strong value stocks with high dividend yield Enterprise Products Partners L.P. (EPD), Energy Transfer LP (ET), and Organon & Co. (OGN) could be ideal buys.
Investing in value stocks can appeal to various investors. Under the strategy, investors seek out stocks that appear undervalued by the market, i.e.; trading below their intrinsic or book value. Investors following the strategy lean on financial analysis, and focus on long-term investments in quality companies.
Also, value stocks with high dividend yield offer reliable stream of income for investors over the long term ensuring reliability and resilience against the market volatility. Such stock serve as a hedge against inflation and appear less volatile compared to non-dividend paying stocks.
Around the rising uncertainties around geopolitical developments and economic projections, the OPEC remains optimistic on its outlook about world oil demand. OPEC expects global oil demand to grow by 2.2 million b/d in 2024, and 1.8% million b/d next year.
On the other hand, propelled by the rising chronic disease prevalence, rising geriatric population, increasing healthcare expenditure by government organizations worldwide, and improving affordability and accessibility of pharmaceuticals, the U.S. pharmaceutical market is expected to grow at a CAGR of 5.5%, resulting in a revenue of $760 million by 2030.
Given the conducive trends, investing in value stocks with high dividend yields such as EPD, ET, and OGN could be wise for future gains.
Enterprise Products Partners L.P. (EPD)
EPD provides midstream energy services globally, including natural gas processing, NGL fractionation, crude oil transportation, and petrochemical marketing. With extensive pipeline networks and storage facilities, the company serves producers and consumers across various energy sectors.
In terms of forward Price/Sales, EPD is trading at 1.11x, 23.3% lower than the industry average of 1.45x. Likewise, the stock’s forward non-GAAP P/E multiple of 10.61 is 5.6% lower than the industry average of 11.23. Also, its forward EV/Sales of 1.65x is 20.9% lower than the industry average of 2.09x.
On April 9, EPD received the deepwater port license for the Sea Port Oil Terminal from the United States Maritime Administration, an agency within the federal Department of Transportation. The license enabled EPD to move forward to the next step in developing the offshore terminal capable of loading 2 million barrels per day of crude oil.
On April 5, EPD’s Board of Directors declared a quarterly cash distribution to be paid to EPD common unitholders with respect to the first quarter of 2024 of $0.515 per unit, or $2.06 per unit on an annualized basis.
EPD pays an annual dividend of $2.06, which translates to a yield of 7.09% at the current share price. Its four-year average dividend yield is 7.81%. Moreover, the company’s dividend payouts have increased at a CAGR of 4.3% over the past three years. EPD has raised its dividends for 25 consecutive years.
During the first quarter that ended March 31, 2024, EPD’s revenues increased 18.6% year-over-year to $14.76 billion and its operating income rose 5.1% year-over-year to $1.82 billion. Net income attributable to common unitholders came in at $1.46 billion, up 4.7% from the prior year’s quarter. Its earnings per common unit grew 4.8% year-over-year to $0.66.
Furthermore, the company’s non-GAAP adjusted EBITDA increased 6.4% from the year-ago value to $2.47 billion. Its non-GAAP free cash flow grew 14.9% year-over-year to $1.04 billion.
Analysts expect EPD’s revenue and EPS for the second quarter (ended June 2024) to grow 5.8% and 28.9% year-over-year to $994.20 million and $0.53, respectively. Also, the company topped the consensus EPS estimates in three of the four trailing quarters.
Shares of EPS have surged 7.5% over the past six months and 9.4% over the past year to close the last trading session at $29.04.
EPD’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EPD has an A grade for Momentum and a B grade for Value, Sentiment, and Stability. It is ranked #4 out of 24 stocks in the A-rated MLPs – Oil & Gas industry.
In addition to the POWR Ratings we’ve stated above, we also have EPD ratings for Quality, and Growth. Get all EPD ratings here.
Energy Transfer LP (ET)
ET offers energy-related services. It owns and operates natural gas transportation pipelines and natural gas storage facilities in Texas and Oklahoma and approximately 20,090 miles of interstate natural gas pipeline.
In terms of forward EV/Sales, ET is trading at 1.38x, 33.8% lower than the industry average of 2.09x. Similarly, the stock’s forward Price/Sales multiple of 0.63 is 56.9% lower than the industry average of 1.45. Further, its forward Price/Cash Flow of 3.96x is 26.3% lower than the industry average of 5.37x.
On May 28, ET and WTG Midstream, LLC entered a definitive agreement under which ET will acquire WTG in a transaction valued at around $3.25 billion and includes eight gas processing plants (~1.3 Bcf/d) and two more under construction (~0.4 Bcf/d). The strategic acquisition will expand ET’s natural gas pipeline and processing network in the Permian Basin.
On April 24, ET increased its quarterly cash distribution to $0.3175 per common unit, $1.27 on an annualized basis, for the first quarter ended March 31, 2024. The cash distribution per common unit was paid on May 20, 2024, to unitholders of record as of the close of business on May 13, 2024, and indicates an increase of 3.3% compared to the first quarter of 2023.
ET pays an annual dividend of $1.27, which translates to a yield of 7.78% at the current share price. Its four-year average dividend yield is 9.39%. Moreover, the company’s dividend payouts have increased at a CAGR of 18.1% over the past three years.
In the first quarter that ended March 31, 2024, ET’s revenues increased 13.9% year-over-year to $21.63 billion. Its operating income grew 15.4% from the year-ago value to $2.38 billion. Its net income was $1.69 billion, up 16.9% from the previous year’s quarter. In addition, the company’s adjusted EBITDA increased 13% year-over-year to $3.88 billion.
Street expects ET’s revenue and EPS for the second quarter (ended June 2024) to increase 16.8% and 39.2% year-over-year to $21.39 billion and $0.35, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 11.8% and 33% year-over-year to $87.88 billion and $1.45.
ET’s stock has surged 15.7% over the past six months and 27.1% over the past year to close the last trading session at $16.22.
ET’s bright prospects are reflected in its POWR Ratings. It has an overall rating of B which translates to a Buy in our proprietary rating system.
The stock has an A grade for Momentum. The stock also has a B grade for Growth, Value, and Stability. ET is ranked #8 among 79 stocks in the Energy – Oil & Gas industry.
Click here to access ET’s ratings for Quality, and Sentiment.
Organon & Co. (OGN)
OGN develops and delivers health solutions through a portfolio of prescription therapies and medical devices within women's health internationally. Its women's health portfolio comprises contraception and fertility brands, such as Nexplanon, NuvaRing, Cerazette, and Marvelon.
In terms of forward EV/EBITDA, OGN is trading at 6.50x, 49.1% lower than the industry average of 12.77x. Also, the stock’s forward Price/Sales multiple of 0.82 is 76.3% lower than the industry average of 3.45. Likewise, its forward EV/EBIT of 6.92x is lower than the 15.79x industry average.
On May 24, OGN and Henlius announced that the European Medicines Agency validated their marketing authorization applications for HLX14, a biosimilar candidate for Prolia and Xgeva (denosumab). This follows a successful phase 3 clinical study comparing HLX14 to the EU-sourced reference denosumab in postmenopausal women with osteoporosis at high risk for fracture.
On May 2, OGN’s Board of Directors declared a quarterly dividend of $0.28 for each issued and outstanding share of its stock. The dividend was paid on June 13, 2024, to stockholders of record at the close of business on May 13, 2024. OGN pays an annual dividend of $1.12, which translates to a yield of 5.51% at the current share price. Its four-year average dividend yield is 4.01%.
On April 15, OGN announced that Mark Cuban’s Cost Plus Drugs had added their products, HADLIMA and NuvaRing, to its online pharmacy. The collaboration potentially expanded patient access to these medications at significantly reduced prices.
During the first quarter that ended March 31, 2024, OGN’s revenues increased 5.5% year-over-year to $1.62 billion. Its adjusted gross profit rose marginally from the year-ago quarter to $1.01 billion. The company’s adjusted net income and EPS came in at $315 million and $1.22, up 14.1% and 13% from the prior year’s quarter, respectively.
Street expects OGN’s EPS for the third quarter (ending September 2024) to increase 21.1% year-over-year to $1.05 and its revenue for the same quarter is expected to grow 2.4% year-over-year to $1.56 billion. Also, the company has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.
OGN’s stock has gained 39.2% over the past six months to close the last trading session at $20.06.
OGN’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Value. It also has a B grade for Sentiment. Within the Medical - Pharmaceuticals industry, OGN is ranked #21 among 154 stocks.
Click here to access additional ratings of OGN for Momentum, Growth, Stability, and Quality.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
EPD shares were trading at $28.91 per share on Friday afternoon, down $0.15 (-0.52%). Year-to-date, EPD has gained 13.83%, versus a 17.41% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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