Day: November 9, 2024

The utility sector isn’t exactly known for growth, but that doesn’t mean you can’t find it if you are willing to look. And dividend growth is exactly what you’ll get from Brookfield Renewable (NYSE: BEP)(NYSE: BEPC), NextEra Energy (NYSE: NEE), and American Water Works (NYSE: AWK).

These three stocks represent three very different companies that get lumped in with the normally slow-growing utility sector. Here’s why you might want to buy these dividend growth stocks as November gets underway.

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Of the three stocks here, Brookfield Renewable is going to have the widest dividend appeal. That’s because the partnership share class (BEP) has a lofty 5.6% yield. The corporate share class (BEPC), which represents the same entity in every way, has a dividend yield of 4.7%, a function of the higher demand for the corporate shares that trade under a different (less complicated) tax structure.

Those yield figures are augmented by the fact that the distribution (or dividend, depending on the share class you are looking at) has grown by a 6% annualized rate since 2001. Looking forward, the goal is growth between 5% and 9% a year.

That’s a very attractive combination of growth and income. But the real story is Brookfield’s focus on renewable energy, which is expected to see increased demand for years into the future. That outlook is backed by the world’s shift from carbon-based energy to cleaner energy sources like solar and wind.

Brookfield is a one-stop shop in the renewable space, with hydroelectric, solar, wind, and storage assets spread across a portfolio with a global reach. If you like dividend growth and you like big yields, this is the opportunity to consider first.

If you aren’t quite ready to go all in on clean energy, don’t worry, you don’t have to. You can buy a utility like NextEra Energy that offers a mix of traditional regulated utility assets and clean energy.

That’s what backs this company’s 2.6% yield and huge 10% annualized dividend growth rate over the past decade. That growth rate isn’t a fluke; management is targeting 10% dividend growth through at least 2026.

The clean energy side of the business is the growth engine, as the company continues to invest in solar and wind power. Just like Brookfield Renewable, NextEra Energy appears to be in the early innings of a long growth game.

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Nvidia (NASDAQ: NVDA) was a $360 billion company at the start of 2023. In less than two years, its market capitalization ballooned to $3.5 trillion. Its ability to turn artificial intelligence (AI) into piles of cash is the driving force behind that incredible growth.

Nvidia’s graphics processing units (GPUs) for data centers are the most popular in the world for developing AI, and demand continues to outstrip supply. That propelled the company’s revenue to triple-digit percentage growth in each of the last five quarters.

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On Nov. 20, Nvidia will release a fresh batch of financial results for its fiscal 2025 third quarter (ended Oct. 31), and if past quarters are any indication, it could be an absolute blowout. Here’s how I predict the stock will react once the results are announced.

Nvidia’s flagship H100 GPU went into production in 2022, and it was the go-to choice for AI data center operators throughout 2023. GPUs are designed for parallel processing, so they can complete several tasks simultaneously with a very high throughput. They also have substantial amounts of built-in memory, which makes them ideal for training AI models and performing AI inference.

AI applications are forecast to drive a productivity boom across the globe, which could be worth up to $200 trillion in economic activity by 2030, according to Cathie Wood‘s ARK Investment. Tech giants like Microsoft and Amazon are filling their data centers with AI GPUs and renting the computing capacity to developers for a fee. It’s a win for them, a win for Nvidia, and a win for the developers who don’t have billions of dollars to spend on their own infrastructure.

Nvidia’s H100 and the newer H200 are still in high demand, but the company’s latest Blackwell architecture promises the biggest leap in performance so far. Blackwell-based GB200 GPU systems can perform AI inference at 30 times the pace of the equivalent H100 systems.

CEO Jensen Huang says individual GB200 GPUs will cost around $30,000 to $40,000, which is about the same price for the H100 when it first came out.

In other words, Blackwell will drive an incredible improvement in cost efficiency, which will make the most-advanced large language models (LLMs) more financially accessible to a wider group of developers and businesses.

GB200 shipments have already begun and will ramp up next year. One estimate suggests Nvidia is on track to ship up to 200,000 individual GB200 GPUs in the final three months of 2024, and we already know Microsoft is currently offering the new GPU to developers. Since Nvidia’s fiscal 2025 third quarter includes October, its upcoming report might include billions of dollars in GB200 sales.

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The company generated a record $30 billion in total revenue during the fiscal 2025 second quarter (ended July 28), which was a 122% increase from the year-ago period. That crushed Wall Street’s forecast of $28.7 billion. The result included $26.3 billion in data center revenue alone, which represented 154% growth thanks primarily to GPU sales.

The chipmaker also generated a strong result on the bottom line with $0.68 in earnings per share (EPS). It was a 152% increase, and comfortably above Wall Street’s estimate of $0.64 per share.

Wall Street also underestimated Nvidia’s guidance for the third quarter. The company told investors it expects to deliver $32.5 billion in total revenue, whereas the Street had the number pegged at $31.7 billion.

Analysts have since revised their estimates higher to $32.9 billion (according to the consensus provided by Yahoo), which now signals that management’s own forecast might be too conservative. We’ll know for sure on Nov. 20.

The performance of a stock on any given day is just noise, but it’s worth noting Nvidia stock actually fell by around 6% the day after it reported its second-quarter results in August. However, it has since gained 24% (as of this writing) and now trades at a record high.

The stock has soared almost tenfold since the start of last year alone, so the long-term trend is crystal clear. If the company exceeds Wall Street’s revenue estimate of $32.9 billion in its upcoming third-quarter report, I would expect the stock to continue moving higher in the weeks and months ahead.

Its valuation also supports upside in the medium term. Wall Street expects the company to generate $4.06 in EPS in fiscal 2026 (which begins in February 2025), which places the stock at a forward price-to-earnings ratio (P/E) of 35.8. That means the stock will have to rise by 90% over the next year or so just to maintain its current P/E of 68.1.

A P/E of 68.1 isn’t cheap relative to the market (the Nasdaq-100 trades at a P/E of 31.8), but Nvidia traded at an average P/E of 58.4 over the last 10 years — and most of that period didn’t even include the incredible tailwind from AI. Therefore, strong upside is definitely on the table in the coming year as long as the company meets Wall Street’s earnings estimate:

Microsoft just told investors it had $20 billion in capital expenditures (capex) during its fiscal 2025 first quarter (ended Sept. 30), most of which went toward data center infrastructure and AI chips. That followed $55.7 billion in capex spending in fiscal 2024. Since Microsoft is rumored to be the biggest buyer of Blackwell chips right now, that bodes very well for Nvidia’s financial results.

But Microsoft isn’t alone. Amazon is on track to spend over $75 billion on AI capex this calendar year, and Meta Platforms will spend up to $40 billion, with even more money earmarked for 2025. The demand trajectory for Nvidia’s GPUs is crystal clear, and that should support strong revenue and earnings growth for the foreseeable future.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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Even a juggernaut like Eli Lilly (NYSE: LLY) can miss the mark sometimes. When it reported its third-quarter earnings on Oct. 30, its share price plunged to the tune of 11% before recovering somewhat, signaling that the market’s reception to its financial performance was strongly negative.

Shareholders discovered that there’s reason to believe that a previously hypothesized risk is now real and that it presents a possible threat to the stock’s prior outstanding performance. Yet the stock is still unambiguously one of the better investments available right now.

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Here’s what happened and why Eli Lilly stock is still worth buying.

First, the bad news: Lilly slightly cut its guidance for 2024. Whereas it previously anticipated bringing in as much as $46.6 billion in sales, it’s now only expecting a max of $46 billion. The reduced guidance for earnings per share (EPS) was even more concerning, with the new high-end estimate of $12.55 where prior guidance called for $15.60 at the high end.

During Q3, Eli Lilly brought in $11.4 billion in sales, up 20% from a year prior, and non-GAAP (adjusted) EPS of $1.18, which was $0.29 less than what the average of Wall Street analysts had estimated. These would normally be considered great results for a pharmaceutical company of Lilly’s (massive) size.

The culprit for the underperformance is where things get interesting. Per management, during the second quarter, wholesalers of its blockbuster drugs for type 2 diabetes and obesity, Mounjaro and Zepbound, essentially loaded up on more doses than there was demand for. Then, during Q3, they didn’t need to buy as many additional doses from Lilly to shore up their inventories, which was a moderate headwind for revenue. Yet at the same time, sales of both medicines were responsible for the lion’s share of the company’s top line, as well as its top-line growth.

Those medicines were in a state of shortage in the U.S. over the last year or so, and have only recently, with the help of billions in manufacturing investments, reached a state of acceptable supply relative to the level of demand from new and current patients. In other words, it makes perfect sense that wholesalers finally purchased more doses than they were able to sell, reversing the high-demand dynamic of the prior quarters.

Still, this new development and the market’s reaction to it means that Lilly has doubtlessly reached a grim milestone. It isn’t that the market for its best-selling drugs is fully saturated and the heyday of growth is over. It’s that the market’s expectations are for the most intense period of that heyday to go on forever, which has now become priced into the valuation of the stock.

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Energy Transfer (NYSE: ET) has been on an acquisition binge. The midstream giant recently closed its nearly $3.1 billion purchase of WTG Midstream, which followed its $7.1 billion merger with fellow master limited partnership (MLP) Crestwood Equity Partners last November. On top of that, the company has continued to invest heavily in organically expanding its operations.

Those investments helped fuel record volumes across several of the MLP’s assets during the third quarter, contributing to its strong earnings growth. With a large and growing pipeline of expansion opportunities, Energy Transfer should have plenty of fuel to continue growing.

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Energy Transfer delivered robust volume growth across nearly its entire franchise during the third quarter, setting several new partnership records:

• Crude oil transportation: Up 25% to a record level.

• Crude oil export volume: Up 49%.

• Midstream gathered volume: Up 6% to a record level.

• Midstream natural gas liquids (NGLs) produced volume: Up 26% to a record level.

• NGL fractionation volume: Up 12% to a record level.

• Total NGL exports: Up 3% to a record level.

• NGL transportation volume: Up 4% to a record level.

• Refined products transportation volume: Up 4%.

The acquisition of Crestwood Equity Partners and WTG Midstream helped fuel the record volume. The MLP also benefited from recently completed expansion projects and a strong market environment.

Energy Transfer’s record-setting volume helped fuel strong earnings growth in the quarter. The MLP generated nearly $4 billion of earnings before interest, taxes, depreciation, and amortization (EBITDA), an almost 12% increase from the year-ago period. Meanwhile, distributable cash flow was roughly flat, compared to the year-ago period, at about $2 billion due to increased maintenance capital spending.

The MLP still produced enough cash to cover its high-yielding distribution (nearly 7.5% yield), with ample room to spare. It paid $1.1 billion of distributions during the period, leaving roughly $900 million in excess free cash flow. That easily covered the MLP’s growth capital spending ($724 million), enabling it to maintain its strong balance sheet.

Energy Transfer is in a strong position to continue growing its volume and earnings. It should continue to get a boost from the WTG Energy deal, which it closed in July.

Also in July, the midstream company closed an accretive joint venture with affiliated MLP Sunoco to combine their crude oil and produced water-gathering assets in the Permian Basin. Energy Transfer has ample financial flexibility to continue making accretive acquisitions as opportunities arise.

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(Bloomberg) — The Treasury market turbulence that followed Donald Trump’s victory has JPMorgan Asset Management’s bond chief warning that yields could return to a level that might endanger the stock market’s record run.

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Bond prices tumbled dramatically immediately after Trump’s win this week, fanned by speculation the Republican will reignite inflation by cutting taxes and slapping tariffs on imports.

While 10-year yields have pulled back after climbing as high as 4.48%, it’s plausible they could return to 5% if Trump’s expected policies are enacted, according to Bob Michele, the chief investment officer and head of global fixed income at JPMorgan Asset Management. Vincent Mortier, the chief investment officer of Amundi SA, also flagged that as a potentially key level that could cause a shift of cash from equities into bonds.

“5% proved to be a very difficult level for markets to absorb a couple years ago,” Michele said at his firm’s ETF Symposium event on Thursday.

“I’d say that discount rate applied to a lot of asset classes is going to cause a pause, a consolidation, and I don’t think that’s unrealistic. Is it going to happen over the next couple quarters? I don’t think so. When Congress and the new administration get seated and all these plans are to unfold, yeah, it could happen.”

Until Trump takes office in late January, Michele’s near-term expectation is that 10-year yields will settle around 4% as investors buy the dip in bonds. But once the new administration is seated and “legitimate proposals” are put on the table, he said the selloff could reignite.

So far, the bond market’s volatility has yet to exert a drag on stocks, which surged to new record highs. Optimism over potential corporate tax cuts and a deregulatory wave following Trump’s win fueled the surge, putting the S&P 500 on course for its best weekly performance of the year.

Paul Quinsee, JPMorgan Asset Management’s head of global equities, sees less risk to stocks from a rise in bond yields. While valuations are a concern, he anticipates that strong corporate profits will continue to support equities.

“We think next year, earnings are going to be up around 12%, 13%,” Quinsee said at the same event on Thursday. “With earnings growth ahead, we stay in the market.”

Michele is more skeptical. If Trump’s campaign proposals turn into policies that translate into higher inflation, the Federal Reserve — which enacted a widely expected quarter-percentage-point rate cut Thursday — would have to respond, he said.

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