2024 Wrap Up… and What’s Next
Happy New Year to you and yours. I think we had a pretty great year in 2024, and we’re set up to continue collecting above average yields yet again in 2025.
Some of the stocks I’ve mentioned here in the past continue to be my favorite:
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AT&T (T)
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Enterprise Products Partners (EPD)
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LyondellBasell (LYB)
If you bought shares when I mentioned these in the January and February issues of Dividend Digest, you would have locked in effective yields of 6.3%, 7.8%, and 5.6%, respectively.
That’s incredible considering the average dividend yield of the S&P 500 sits at just 1.2%. This is one of the lowest dividend yields the Index has seen in 20 years.
AT&T and EPD have also both seen shares run up since my mentions at the beginning of the year. Shares of T are up 29% while shares of EPD are up 15%. Although both are currently above my preferred buy-up-to price, if you hold either position, you’re set to continue collecting an above-average yield.
Unlike the other two, LYB shares have dropped 20%. There is concern that the extent of the company’s focus on repositioning and acquisitions means the dividend will get cut. Remember that a company in a growth phase tends to reinvest its “extra income” back into the business instead of paying it out to shareholders.
The company’s payout ratio has crept above 70%. The payout ratio is the share of company earnings that are paid out as dividends. I think management will try to keep the ratio stable, even if it means deferring a possible dividend increase.
LYB remains one of my favorite companies for the new year. The plastics recycling giant is carving out a huge niche in the future of packaging and recycling technology. And I think this is a company we’ll be able to hold in our portfolios for years, or even decades to come.
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If you’ve locked in a position on these three stocks—or any other stocks I’ve mentioned here in Dividend Digest—I’d love to hear from you. Our customer service team can pass on your comments. Or you can comment on this article directly in our online community area.
Looking Ahead To 2025
It probably won’t surprise you to know that our strategy won’t change much going into the new year. Sure, I’ll be looking for opportunities based on the macro environment and investor speculation trends. But overall, the importance of having solid Bedrock Income and Current Yield dividend payers remains the same.
We will want to keep an eye on interest rates in 2025. Even though we got a rate cut in December, the Fed has signaled it will loosen rates less moving forward. We should only count on two more rate cuts, down from the four projected at the September meeting.
The more that interest rates drop, the more that CDs and money market yields will drop as well. As that happens, those seeking streams of income will turn to dividend stocks. If that money flows back into the market it could hand us some nice capital gains… but a higher stock price will also push the current yield lower on dividend stocks.
We’ll also need to watch for legislation changes as the keys to the kingdom are passed to the incoming White House, cabinet, and congress. Most changes will have a trickle-down effect on our positions. However, investor sentiment can shift quickly and send both industries and individual companies reeling in one direction or the other.
At the end of the day, dividends work in all markets. And they are powerful tools for building wealth and collecting more income.
I know I don’t have to sell you on the appeal of dividend stocks. You’re already here and hopefully collecting some quarterly checks yourself. However, if you’re interested in some data-driven evidence for dividends, I recently put together a white paper titled The Case for Dividends. You can read the paper here.
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For more income, now and in the future,
Kelly Green
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