We recently compiled a list of the Top 20 Dividend Stocks of 2024. In this article, we are going to take a look at where Energy Transfer LP (NYSE:ET) stands against the other dividend stocks.
Macroeconomic factors have weighed on US stocks in the final days of the year, with the broader market declining by over 1% in the past week. Despite this post-Christmas slowdown, US financial markets are on the verge of closing out another exceptional year. The broader market index is projected to post a roughly 25% gain for 2024, marking the first back-to-back annual increases of more than 20% since 1997-1998. This strong performance has been supported by positive economic indicators, including resilient consumer spending and a robust labor market. Inflation, though still elevated, has shown consistent signs of moderation.
Improved economic data and easing inflation have also influenced the Federal Reserve’s policy shift this year. Anticipation of rate cuts contributed to market growth, with the central bank implementing its third rate reduction in 2024.
Dividend stocks have had a relatively weak performance this year, with the Dividend Aristocrats Index achieving a modest return of about 4%, widening the gap between its performance and that of the broader market. The index tracks the performance of companies that have raised their payouts for at least 25 consecutive years. However, investors shouldn’t lose confidence in these results, as the value of dividend stocks becomes more apparent over the long term. A report by Franklin Templeton highlighted that, since 1926, dividends have accounted for nearly one-third of the total equity returns of US stocks. Additionally, from 1980 to 2019—a period marked by a sharp decline in interest rates—dividends contributed 75% to the market’s overall returns.
Investors are often drawn to dividend growth stocks because dividend payments are generally viewed as a sign of long-term commitment. Maintaining these payments demands profitability, strong returns, and consistent cash flow generation, making them a valuable indicator of a company’s quality. Businesses that regularly raise their dividends showcase their ability to consistently generate profits, which can also signal greater resilience during economic or market downturns. According to research, companies within the broader market that pay dividends have historically been more profitable compared to those that do not.
Reflecting investors’ preference for dividend stocks, many US companies are increasing their payouts and implementing dividend policies. As of September 30, 2024, around 80% of companies in the Index paid dividends, a figure consistent with a decade ago. Notably, 24% of these dividend-paying companies now belong to the technology sector, a significant rise from 13% ten years earlier, as reported by Franklin Templeton. Other innovative industries, such as healthcare and industrials, have also seen growth in dividend payers.
This broader adoption of dividends has expanded the range of options for equity income investors, offering greater access to dynamic and high-growth companies. For instance, major tech companies that are market leaders have recently introduced dividends. Meanwhile, established tech giants demonstrate that dividend payments can coexist with innovation and reinvestment, proving that companies can excel at both.
Our Methodology:
For this list, we reviewed a selection of dividend stocks and identified those that have provided positive returns in 2024. From this group, we focused on companies offering yields above 2% as of December 30. We then narrowed down the list by selecting companies with the most hedge fund investments, based on Insider Monkey’s Q3 2024 database. The stocks are arranged in ascending order of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of an oil rig at sunrise, emphasizing the power of the natural gas transportation industry.
Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 29
Energy Transfer LP (NYSE:ET) ranks seventeenth on our list of the best dividend stocks of 2024. The Texas-based energy company is engaged in the pipeline transportation and storage for natural gas, crude oil, and other refined products. The company boasts one of the strongest growth projects in the midstream sector and is planning to allocate between $2.5 billion and $3.5 billion annually for growth capital expenditures (capex), driven by the opportunities it is encountering. During its most recent earnings call, the company highlighted strong interest from power generation firms and data center operators in natural gas pipeline projects, driven by the growing power demands from the expansion of AI infrastructure. With a 12-month return of nearly 41%, ET is one of the best dividend stocks of 2024.
Energy Transfer LP (NYSE:ET) has demonstrated strong operational and financial results this year, setting multiple volume records in Q3 due to organic growth and strategic acquisitions. In November, it acquired Crestwood Equity Partners for $7.1 billion, and in July, it completed the $3.1 billion acquisition of WTG Midstream. In addition, the company successfully finished two processing optimization projects: the Red Lake III processing plant and a pipeline connection between Midland and Cushing.
Patient Capital Management mentioned ET in its Q3 2024 investor letter. Here is what the firm has to say:
“Energy names disappointed in the quarter following commodity prices lower throughout the period. We took the opportunity to add to our highest conviction ideas. We look to names that have idiosyncratic opportunities and are attractive in a variety of different commodity price environments. Many see risk to energy prices over the next year as supply is expected to outstrip demand by 1.3mb/d even before assuming any incremental OPEC supply comes onto the market. With commodities, consensus is rarely right. We assess companies on through cycle returns and normalized prices. From this perspective, we see a handful of attractive opportunities, including Energy Transfer LP (NYSE:ET), Seadrill (SDRL) and Kosmos (KOS).
Our ownership of Energy Transfer began in 2019 with the belief that the limited supply of new pipelines would provide attractive pricing opportunities over the long-term. At the same time, the company was paying us an attractive dividend (10% yield over the period). So far this investment thesis has largely played out, but we continue to see an attractive long-term setup for the name given our belief that natural gas will be a key ingredient to bridge us to a net carbon neutral world.”
Energy Transfer LP (NYSE:ET) also reported a solid cash position in its most recent quarter. Distributable cash flow (DCF), which reflects the cash generated before growth capital expenditures, increased by $4 million, reaching $1.99 billion. The company saw strong volumes across its systems, setting several volume records during the quarter. On October 28, Energy Transfer declared a 0.8% increase in its quarterly dividend to $0.3225 per share, marking the 12th consecutive quarterly dividend increase. The stock supports a dividend yield of 6.59%, as of December 30.
As per Insider Monkey’s database of Q3 2024, 29 hedge funds held stakes in Energy Transfer LP (NYSE:ET), compared with 32 in the previous quarter. These stakes are collectively valued at over $965.5 million.
Overall ET ranks 17th on our list of the best dividend stocks of 2024. While we acknowledge the potential of ET as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.