The S&P 500 is coming off of back-to-back years of 20%-plus annual gains for the first time in over 25 years. But corporate earnings have not grown at the identical rate, so many corporations’ valuations have grow to be dearer. Nevertheless, there are many opportunities to search out quality corporations at compelling valuations in the event you know where to look.
These three Idiot.com contributors pegged 3M (NYSE: MMM), Essential Utilities(NYSE: WTRG), and Equinor(NYSE: EQNR) as standout dividend stocks to purchase in 2025. By investing in equal parts of every stock, you’ll be able to expect to earn a 3.8% yield — which is roughly 3 times higher than the S&P 500 yield of 1.2%. Here’s why all three stocks are value buying in 2025.
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Lee Samaha(3M): With a 2.2% dividend yield, 3M is not quite the dividend stock it was. Nevertheless, investors won’t care an excessive amount of about that because after years of underperformance, the stock rose by 42% in 2024. Furthermore, if CEO Bill Brown’s plan to rejuvenate the corporate involves fruition, the stock can outperform again in 2025.
3M’s lackluster growth over the past decade means there’s ample opportunity to enhance operational performance. That starts with restoring its fame for revolutionary latest product introductions (NPIs), a key a part of Brown’s long-term plans. While investments in research and development are underway, 3M’s management team can be busy implementing lean manufacturing techniques, improving the corporate’s asset utilization, reducing complexity in its supply chain (primarily by consolidating suppliers), and improving its on-time in-full (OTIF) deliveries.
These supply chain improvements will result in significant improvements in money flow generation as they permit 3M to enhance inventory turnover (so less must tie up money in holding inventory). Moreover, within the near term, 3M is cutting less profitable product lines (representing about 5% of its consumer sales) and fast-tracking some NPIs in product line extensions.
With the healthcare business (a segment that the previous management devoted numerous effort and time into with disappointing results) now spun off as a separate company, the present senior management has a superb opportunity to enhance operational performance at 3M. And trading at 16.3 times estimated 2025 earnings, 3M looks like a wonderful value opportunity.
Scott Levine (Essential Utilities): From growing an emergency fund to reducing wasteful spending, investors have made all types of Latest Yr’s resolutions. One common plan for the brand new yr, for instance, is growing one’s passive income stream. Of the various great dividend stocks available to investors, water utility stock Essential Utilities — together with its enticing 3.6% forward dividend yield — is an especially great opportunity at once, considering its inexpensive valuation.
Having boosted its dividend 34 times over the past 33 years, Essential Utilities has demonstrated a steadfast commitment to returning capital to shareholders. And the raises aren’t mere drops within the bucket either. From 2015 to 2024, Essential Utilities has hiked its dividend at a 7% compound annual growth rate (CAGR). While it’s not possible to know the long run, it seems likely that future dividend growth can be in store as management projects earnings per share will increase at a CAGR of 5% to 7% from 2025 to 2027. Because the corporate primarily operates in regulated markets — about 99% of earnings come from regulated water and wastewater operations — investors might be confident that the corporate will achieve management’s projections.
With shares of Essential Utilities changing hands at 12.4 times operating money flow, a reduction to its five-year average money flow multiple of 17, today looks as if an awesome time to click the buy button on Essential Utilities stock.
Daniel Foelber (Equinor): Norwegian energy giant Equinor was the worst-performing integrated oil major in 2024.
Equinor and fellow European majors now sport inexpensive valuations than ExxonMobil and Chevron.
A part of the explanation Equinor, specifically, could also be so low-cost is due to changes to its capital return program and renewable energy investments.
For the last three years, Equinor investors have enjoyed an everyday dividend in addition to an additional dividend payout. The payments have been massive — most recently $2.80 per share in 2024 — representing a greater than 10% yield. At the identical time, Equinor was aggressively repurchasing stock, reducing its share count by 15.6% within the last three years. In total, Equinor returned over $14 billion to investors through dividends and buybacks in 2024.
Equinor had at all times made it clear that a capital return program of this scale wasn’t sustainable over the long run. Relatively, the corporate used outsize profits to pay down debt and return capital to shareholders. However it still plans to return $8 billion to $10 billion to investors in 2025, including around $4 billion to $6 billion in buybacks and $0.02-per-share raises to the peculiar dividend. So even without the additional juice from the special dividend, Equinor still sports a yield of 5.5%.
Equinor has been constructing out its renewable energy portfolio, led by offshore wind. The Norwegian continental shelf is ideally suited to offshore wind projects. Elsewhere, Equinor has been involved in leases worldwide, including off the U.S. East Coast. On Dec. 23, Equinor accomplished a ten% stake in Danish wind giant Orsted. The stake is valued at $2.3 billion, but Equinor paid a median weighted price that’s 14.4% greater than the present price of the stock on the time of this writing. Wind can be an integral part in helping Equinor achieve its carbon reduction goals. Nevertheless, the wind industry has been in a downturn, which is probably going hurting the near-term investment thesis in Equinor.
Still, the corporate stands out as a balanced energy stock for 2025. Equinor has been exploring for and producing oil and gas from the North Sea for a long time. It is very profitable and now sports an incredibly healthy balance sheet with additional cash and money equivalents than long-term debt. The valuation and yield are compelling, especially relative to other majors.
Nevertheless, investors on the lookout for more concentrate on oil and gas should want to consider a U.S. major like ExxonMobil or Chevron, as these corporations are putting capital to work in expanding their oil and gas production portfolios and lowering their average production costs per barrel. Equinor continues to take a position in latest global oil and gas projects as well, however it doesn’t have as attractive onshore acreage yet.
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Daniel Foelber has positions in Equinor Asa and has the next options: short February 2025 $26 calls on Equinor Asa. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends 3M and Chevron. The Motley Idiot recommends BP, Equinor Asa, and Ørsted A/s. The Motley Idiot has a disclosure policy.
