Earning dividends from stocks is a great way to participate in the market while earning passive income. Many companies use dividends to return profits directly to shareholders. And the best companies are able to grow their profits and dividend payments over time.

Here’s why Brookfield Renewable Energy (BEPC -0.33%) (BEP -0.18%), Phillips 66 (PSX -0.25%)and the US Global X SuperDividend ETF (DIV -0.78%) stand out as two best dividend actions and a top exchange traded fund buy now.

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Brookfield Renewable’s strong backlog suggests it is well-positioned to extend its impressive streak of dividend increases.

Scott Levine (Brookfield Renewable Energy): The prospect of boosting your passive income stream with a high-yielding dividend stock is undeniably enticing. Experienced investors, however, know all too well that these dreamlike opportunities can quickly turn into nightmare scenarios if companies are not in good financial health and payouts are reduced to avoid financial ruin. Therefore, it’s understandable that Brookfield Renewable is drawing skepticism with its forward 5% dividend yield, but a closer look at the company’s financials shows that this high-yielding stock deserves serious consideration.

From the Americas to Europe to Asia, Brookfield Renewable operates a significant portfolio of renewable energy assets – a portfolio that is constantly growing. Since 2020, for example, the company’s portfolio has doubled in terms of generating capacity to around 37 gigawatts (GW), and it will likely continue to grow at a steady pace for the foreseeable future, fueled by the company’s 65 GW. projects at an advanced stage. in its pipeline. And because Brookfield Renewable’s business model relies on entering into long-term power purchase agreements with customers, this bodes well for supporting future dividend growth.

As for the dividend, management is targeting steady growth of 5-9% for the foreseeable future. And even if the company’s past performance does not guarantee the same results in the years to come, it is worth recognizing that it has accumulated a solid track record of increasingly rewarding shareholders. For over 20 years, Brookfield Renewable has increased its distribution at a rate of 6%. compound annual growth rate.

Phillips 66 invests its profits in its capital return program

Daniel Foelber (Phillips 66): Phillips 66 has had a rollercoaster ride in recent years. In 2020, falling crude prices reduced refiners’ costs, but as demand for products like jet fuel, gasoline and diesel also declined, many refiners ended up posting losses that year. Refining stocks, including Philips 66, surged from 2021 to early 2024 as economic growth boosted product demand, sales rose and margins improved. However, as you can see in the following chart, sales and margins have been declining recently. And lower margins generally correspond to a lower Phillips 66 stock price.

PSX data by Y Charts

Phillips 66 looks awesome dividend-paying value stocks to buy now. The company’s strategy and capital allocation are based on mid-cycle targets, so that it is not caught up in the short-term ebb and flow of refining margins. Phillips 66 also has clearly defined capital return objectives. Since Phillips 66 and ConocoPhillips Separated in 2012, Phillips 66 has increased its dividend each year and repurchased a third of its outstanding shares. As of July 30, Phillips was targeting a total shareholder distribution return of 9.1%, comprised of 3.1% dividends and 6% share repurchases. Since then, the yield has increased to 3.5% because the stock price has continued to fall. But the takeaway is that Phillips 66 returns even more value to shareholders through buybacks than through dividend payments.

Phillips 66 is a fairly predictable company from a capital allocation perspective. It tends to suspend or reduce share buybacks and capital spending when profits decline, but it consistently rewards shareholders by increasing the dividend regardless of market conditions. You can see this trend manifest in the following chart, which shows Phillips 66’s share repurchases and capital expenditures since the split.

PSX Stock Repurchases (TTM) data by Y Charts

Overall, Phillips 66 is a great high-yielding dividend stock because it can grow its dividend even during an industry downturn.

A high-yielding ETF that makes a monthly distribution

Lee Samaha (US Global X SuperDividend ETF): Finding high-yielding stocks isn’t difficult, but finding high-yielding stocks that can grow that dividend isn’t as easy. There is often a reason why a stock trades at a high yield, and many times it is the market price that casts doubt on the sustainability of the dividend.

So there is always a risk in mindlessly following a high-yield investment strategy. This risk is reduced by purchasing an ETF like the Global X Super Dividend US ETF, which aims to invest in a basket of 50 high-yielding stocks in the US market. This strategy helps diversify risk specific to the security.

That said, the strategy will tend to overweight specific market sectors, leading to sector risk. For example, at the time of writing, four sectors account for more than 10% of the ETF’s holdings. Energy stocks make up 20% of the ETF, followed closely by utilities at 19.6%, real estate at 18.6% and consumer staples at 10.9%. Therefore, this ETF is not for you if you are not comfortable with being overweight in these sectors.

On the other hand, the ETF pays a monthly distribution and the sectors offering the highest returns are likely to change over time. As such, you can view investing in high-yielding ETFs as investing in poorly appreciated sectors of relatively mature industries. There’s nothing wrong with that, and the financial discipline imposed on management committed to paying a sustainable dividend provides a stable basis for generating shareholder value.

As such, many investors will find this ETF and its 6% dividend yield an attractive addition to a high-yielding portfolio.