The prospects of upcoming interest rate hikes and a possible economic recession have rocked financial markets in recent months. For example, file Standard & Poor’s 500 The index is down 19% year-to-date.
But increased passive income can take the investor’s focus off his unrealized losses in a market downturn such as the current downturn. Here are three stocks that can provide income investors with safer, more market-beating, and increased passive income.
1. Enterprise product partners
With a system of over 50,000 miles of natural gas, natural gas liquids, crude oil, petrochemicals and refined product pipelines, a major limited partnership Enterprise Product Partners (EPD 1.26%) It is one of the largest carriers in the world.
With the infrastructure to transport raw materials from Enterprise Products Partners and warehouses to anything that uses petrochemicals (that’s a lot of things), the demand for their infrastructure isn’t going anywhere anytime soon. In fact, global economic growth and population growth will increase overall demand for Enterprise Products Partners’ pipelines through 2040 compared to 2019, according to projections by the International Energy Agency.
This makes the quarterly distribution of Enterprise Products’ partners likely to build on a 23-year growth streak in the coming years with low single-digit increments each year. And with a distribution coverage ratio — the degree to which a partnership’s distributable cash flow covers distribution payments — 1.7 in 2021, investors can rest assured that Enterprise Products Partners’ market-crushing 7.3% distribution yield is very safe.
Best of all, investors can acquire units of the partnership at a 12-month distributable cash flow rate of 8.4. For a world-class business like Enterprise Products Partners that is set to grow steadily at a low single-digit clip annually, this is an overall assessment.
2. AO Smith
As individuals and businesses desire hot water for bathing, washing and industrial uses, the demand for hot water heaters is set to grow in the coming years. This is the basic premise that makes the manufacturer of residential and commercial water heaters and boilers AO Smith (to me 1.86%) Very attractive.
Market research firm Allied Market Research expects the global water heater market to accumulate 5.1% annually from $32.6 billion in 2017 to $48.5 billion by 2025.
Given AO Smith’s leading market share in an industry with promising growth prospects, analysts believe the company will achieve 8% annual earnings growth over the next five years.
And with a dividend yield of 35.1% in 2021, Dividend Aristocrat appears poised to extend his track record of 29 consecutive years of dividend growth into the future. This manageable payout ratio should translate into high single-digit annual earnings growth for the foreseeable future. On top of this strong growth potential, AO Smith’s dividend yield is over 1.9% in the market.
The exciting thing up front is that all of this can be had for investors at a forward price-to-earnings (P/E) ratio of just 16.3. For context, that’s lower than the S&P 500 futures P/E ratio of 16.7. Simply put, AO Smith is trading an above-average stock with an below-average valuation.
With nearly 2,200 home improvement stores in the US and Canada, Louie (Little 1.27%) It is the second largest home improvement retailer after Home Depot. The investment thesis is that Lowe’s can leverage its brand strength in a fragmented, but massive, $900 billion home improvement sector.
No matter what the economy has done over the past 59 years, Lowe’s has raised payments to its shareholders, making it the property of dividends. And with a stock payout of just 23.3% in 2021, Lowe should have scope for a two-fold increase in earnings later this month to extend his dividend growth streak to 60 straight years.
Thanks to ever-increasing spending on home improvement, analysts expect Lowe’s annual earnings growth of 14.5% over the next five years. Investors can snatch Lowe’s best-in-the-market return of 1.7% at a forward P/E ratio of just 14.3.