3 most innovative dividend stocks for the second half of 2022

The best companies in the world have a reputation for bringing new products and services to market in order to maintain their competitive edge in a changing economy. Large, industry-leading companies might be able to get away with a lack of innovation for a while, but over time this often complacently leads to slower growth.

NextEra Energy (BORN -0.06%), Equine (EQNR 3.34%)and Deere (OF 3.48%) are similar in that they have all established businesses in legacy industries, but are also aggressively investing in what they believe will be the next chapter of growth in each of their areas. Here’s what makes each of these dividend-paying stocks a great buy now.

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1. A leading public service in the energy transition

NextEra Energy is the largest utility by market capitalization in the United States. The stock’s outperformance is largely due to its first mover advantage in the transition from coal (and, to a lesser extent, natural gas) to renewable energy.

The company’s two main businesses are Florida Power & Light (FPL) – which absorbed Gulf Power earlier this year – and NextEra Energy Resources (NEER).

FPL is Florida’s largest regulated electric utility. It continues to transition its power generation portfolio to solar power and expects an approximately 65% ​​increase in zero-carbon power generation from the FPL system over the next decade. compared to 2021 levels.

Meanwhile, NEER – the company’s main renewable energy arm – expects its total renewable capacity (wind, solar and other sources) to be between 22.7 gigawatts (GW) and 30 GW of 2021 to 2024.

NextEra Energy is already the largest renewable energy operator in North America. But what makes it unique is that it does not slow down its investments despite its leading position. As a regulated electric utility, it has projects that are ideal for risk-averse investors, as they generate predictable cash flows that support the company’s growing dividend and future development projects. NextEra has a dividend yield of 2.1% at the time of this writing.

2. From offshore oil and gas to offshore wind

Equinor is Norway’s largest oil and gas company. Considered one of the largest integrated majors in the world, Equinor has spent decades being the dominant player in the North Sea.

However, the company’s production has slowed in recent years despite significant investment in the Gulf of Mexico and offshore Brazil. For example, first-half 2022 production was 2% lower than first-half 2021 production, and full-year 2022 production is expected to be only 2% higher than full-year 2021 production. Equinor’s production in 2021 of 2.079 million barrels of oil equivalent per day (boe/d) was virtually stable compared to 2.08 million boe/d in 2017 and only 7% above the average of 1.94 million boe/d in 2013. This gives Equinor’s production a compound annual growth rate of less than 1% over the past 10 years.

One of the reasons for the slow growth is that Equinor has aggressive carbon reduction targets and is investing heavily in renewable energy, carbon capture and storage, and offshore wind power.

Equinor has low oil and gas capital expenditures (capex) and one of the lowest production costs of any major oil and gas company, helping it rake in tons of free cash flow (FCF). Despite being one of the smallest majors by market capitalization and having less than a third of ExxonMobilof market capitalization, Equinor generated the equivalent of more than half of ExxonMobil’s FCF in 2021 and the most FCF as a percentage of market capitalization of any major company.EQNR free cash flow statement (annual)

EQNR free cash flow (annual). Data by YCharts.

Equinor continues to make selective investments in oil and gas. However, it needs to diversify its portfolio to include renewables and carbon capture and storage if it is to meet its mid- to long-term carbon reduction goals. According to its 2022 energy transition plan, the company aims to increase oil and gas production by just 2% between 2021 and 2022 while reducing the carbon intensity of its oil and gas portfolio. It has earmarked $23 billion in renewable energy investment between 2021 and 2026 to reach 12 GW to 16 GW of installed capacity by 2030. However, we could see Equinor reallocate some of its renewable spending to oil and gas in response to growing demand in Europe. due to the Russian-Ukrainian conflict.

In many ways, Equinor is similar to NextEra Energy in that it still operates a large portfolio of fossil fuel-based assets, but allocates most of its investments to low-carbon solutions. It has a dividend yield of 2.2% at the time of this writing.

3. Cultivate decades of growth

Like NextEra Energy and Equinor, heavy equipment manufacturer Deere has set ambitious sustainability goals. And unlike many companies that simply say they will be carbon neutral by 2050, Deere’s goals are based on 2026 and 2030 targets.

Known as its Leap Ambitions plans, Deere aims to grow its market share in manufacturing and precision farming, smallholder agriculture and turf, construction and forestry by offering low-carbon solutions such as electric and hybrid models, as well as automation at the forefront of its end markets.

Most notable is Deere’s goal to have 100% of small farm equipment connected-enabled by 2026 and to supply more than 20 models of electric and hybrid products. Elsewhere, the company aims to reduce its carbon dioxide equivalent emissions, improve nitrogen use efficiency and reach 95% recycled content by 2030. It also plans to reduce other emissions by 50% by that year.

Deere is a great example of a historic company and a well-known American brand that plans to achieve long-term growth and earn customer trust through sustainable business practices.

The results show that the strategy is working. Deere posted record earnings in 2021 and is forecasting an even better year in 2022. Its dividend yield is just 1.5%, but the company is prioritizing share buybacks and organic investments over growth. dividend. underlying investment thesis.

High performance isn’t everything

NextEra Energy, Equinor and Deere are by no means high yielding dividend stocks. But these are great companies that have a good chance of growing their businesses over time and supporting their dividends with cash, not debt. In that vein, all three companies could offer better long-term value than a high-yielding dividend stock with weaker growth prospects.

About Myra R.

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