dividend stocks new year

3 Of Our Favorite Dividend Stocks for the New Year

As 2023 draws to a close, it is an excellent opportunity for investors to assess their portfolios for the new year. The S&P 500 Index is wrapping up a strong year, registering a year-to-date total return of 22.2% as of this writing.

The good news is that there are still undervalued stocks with strong dividends to choose from despite the market’s strong performance in 2023. The following 3 stocks have dividend yields above 3% and total expected returns above 10%, making them among our top picks for 2024.


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3 Favorite Dividend Stocks for the New Year

Lincoln National Corp (LNC)

Lincoln National Corporation (LNC) operates in the financial sector and it is our first dividend stock pick for the New Year. The company offers customers life insurance, annuities, retirement plan services, and group protection. The corporation was founded in 1905 as The Lincoln National Life Insurance Company. Permission from Abraham Lincoln’s son to use the former president’s name was granted. 

Lincoln National reported third quarter 2023 results on November 1st, 2023, for the period ending September 30th, 2023. The company generated a net income of $4.79 per share in the third quarter, which compared favorably to a loss of ($10.47) in the third quarter of 2022. Adjusted income from operations equaled $0.23 per share compared to a loss of ($11.49) in the same prior year period. 

Additionally, annuities’ average account balances rose by 4% to $151 billion, and group protection insurance premiums grew 4% to $1.3 billion. The book value per share, including adjusted income from operations (AOCI), fell 21% compared to the prior year to $13.04. Book value per share excluding AOCI increased 10% to $63.03.

Dividend and Total Return

The COVID-19 pandemic crushed Lincoln National’s 2020 results, but they recuperated strongly in 2021 before plummeting in 2022. For 2023, we expect the corporation’s adjusted earnings to normalize once again. Despite the ups and downs, LNC grew net income by 7.0% on average over the nine years between 2012 and 2021. 

The dividend has grown after it was slashed in 2008 and 2009 to $0.04 annually. The firm’s 2020 dividend of $1.60 was the first time the dividend returned to this amount since 2007. Additionally, the share count has been reduced meaningfully over the last decade. Continued substantial share repurchase would be a tailwind to per-share earnings. We estimate 8% annual EPS growth over the next five years.

LNC stock yields 7.3%. Total returns could exceed 21% per year over the next five years.

Portfolio Insight - Dividend Yield History LNC
Source: Portfolio Insight*

Baxter International (BAX)

Baxter International (BAX) develops and sells healthcare products, including biological products, medical devices, and connected care services devices used to monitor patients. Its products are used in hospitals, nursing homes, kidney dialysis centers, doctors’ offices, and patients at home under physician supervision. Baxter is our second favorite dividend stock for the New Year.

On November 2nd, 2023, Baxter International reported Q3 2023 results. Revenue increased 3% for the quarter to $3.71 billion, but this was $11 million more than expected. Adjusted earnings-per-share of $0.68 compared unfavorably to $0.82 in the prior year, which was in line with estimates. Most businesses within the company showed growth from the preceding year or had similar sales totals. Excluding the impact of currency exchange, Kidney Care revenue was flat at $1.1 billion. The company plans to spin off this business into a standalone publicly traded one by July 2024. 

Medical Products & Therapies grew 4% to $1.3 billion, Healthcare Systems & Technologies was unchanged at $744 million, and Pharmaceuticals grew 9% to $580 million. Baxter also provided updated guidance for 2023. Assuming the divestiture of the BioPharma Solutions business closes in 2023, the company now expects adjusted earnings-per-share in a range of $2.57 to $2.60. We expect 10% annual EPS growth for Baxter.

Valuation and Dividend

Baxter stock appears to be undervalued, trading for a 2023 P/E of 13X compared with our fair value estimate of 20X. An expanding valuation multiple could boost annual returns by 7% per year.

Baxter has raised dividend payments to shareholders for six consecutive years, placing it on the Dividend Challengers list and paid dividends for 32 straight years. BAX has a computed yield of 3.2%. The company’s low payout ratio of ~45% makes us believe that the dividend is safe and will continue to grow alongside the 10% projected earnings-per-share growth. Total returns could reach 20% per year over the next five years.

Portfolio Insight - Dividend Yield History BAX
Source: Portfolio Insight*

Eversource Energy (ES)

Eversource Energy (ES) is a utility holding company with subsidiary businesses providing regulated electric, gas, and water distribution services in New England. The company’s utilities serve more than four million customers after it acquired NStar’s Massachusetts utilities in 2012, Aquarion in 2017, and Columbia Gas in 2020. Eversource is our top utility dividend stock selection for the New Year.

On November 6th, 2023, Eversource Energy released its third quarter 2023 results. For the quarter, the company reported revenue of $2.79 billion, a decrease of 13.2% compared to the same quarter of last year. The company reported earnings of $339.7 million and earnings-per-share of $0.97 compared with earnings of $349.4 million and earnings-per-share of $1.00 in the prior year. Revenues from the Electric Transmission segment have increased by 2.8% to $160.3 million compared to the same quarter in the previous year. 

The improvement primarily resulted from a higher level of investment in Eversource’s electric transmission system. Earnings from the Electric Distribution segment were $173.3 million, down 21% from the prior year quarter.

Growth and Dividend

Many sources will fuel future growth. Eversource Energy aims to invest $21.5 billion in projects, like transmission and electric distribution, from 2023 to 2027, supporting its carbon-neutral goal by 2030. Most notably, the company plans to add 1,758 megawatts of offshore wind power generation through a joint venture by 2025. The utility reaffirmed its earnings per share growth forecast of 5% to 7% compound annual rate from 2023 through 2027, the same as for dividend growth.

The company has a long history of paying dividends and has increased its payout for 25 consecutive years, making it a Dividend Champion in 2023. The firm’s dividend payout ratio has averaged around 64% during the past five years. The company has an estimated 2023 payout ratio of 62%, which indicates a sustainable dividend. Eversource stock currently yields 4.4%. Its total returns could reach 18% per year over the next five years.

Portfolio Insight - Dividend Growth ES
Source: Portfolio Insight*

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Disclosure: Members of the Sure Dividend team are long the equities discussed.

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Bob Ciura
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Bob Ciura is President of Content at Sure Dividend. Bob has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. Bob received a bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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