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Phillips 66 is a major player in the refining sector, known for its consistent dividend increases.
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JM Smucker has become an attractive option for investors due to its affordability.
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Global X MLP & Energy Infrastructure ETFs are paving the way for America’s energy future.
S&P 500 (snpindex: ^gspc) has seen a remarkable recovery, as investors reflect on past macro challenges while focusing on long-term growth prospects.
This turnaround has led to rising valuations in various stocks and exchange-traded funds (ETFs). Major indices like the S&P 500 appear relatively pricey now. However, there are still compelling bargains if you know where to look.
That brings us to Phillips 66 (NYSE: PSX), JM Smucker (NYSE: SJM), and the Global X MLP and Energy Infrastructure ETF (nysemkt:mlpx), all appealing for those seeking to generate passive income through dividend stocks and ETFs.
Scott Levine (Phillips 66): The energy sector has faced significant scrutiny, especially as oil and gas prices soared last year. In fact, shares of Phillips 66 have dropped over 18% during this period. Yet, this decline could offer an enticing buying opportunity, with solid energy stocks now presenting a forward yield of 4.3%.
What makes Phillips 66 particularly appealing isn’t just the high-yield dividend. Since 2012, the company has paid dividends consistently, even as they aim to return capital to shareholders. However, they do walk a fine line with financial risk. Over the last five years, they’ve maintained a payout ratio of about 72%.
While they have various operations, including midstream assets and a chemical business, the refining segment is crucial. From 2021 to 2024, refining is expected to contribute around 38% to their adjusted EBITDA. Over recent years, Phillips 66 has made strides in cutting refining costs, aiming for further reductions by 2027. They’ve already decreased costs from $6.98 per barrel in 2022 to $5.90 in 2024, with a target of $5.50 by 2027.
Another factor for potential dividend growth is the recent activist investor activity, resulting in Elliott Investment Management securing two board seats.
For those aiming to boost passive income, Phillips 66 could be a smart choice.
Daniel Folver (JM Smucker): JM Smucker faced a significant setback this week, seeing a surprising 15.6% decline in one day—quite unusual for a historically stable, dividend-paying company.
Currently, the stock is at its lowest point in over a dozen years.
The company, which boasts a variety of brands in five key sectors—including US retail coffee with names like Folger—has products that depend heavily on consumer discretionary spending. With inflationary pressures and evolving consumer preferences towards healthier options, it’s clear why JM Smucker’s profits are taking a hit. This situation might deter some investors from considering JM Smucker as a viable option for acquiring undervalued stocks. Still, the company has a strong advantage: its free cash flow (FCF).
Even in a challenging year, they generated $816.6 million in FCF, while dividend payouts were only $455.4 million. Projected FCF may reach $875 million by fiscal year 2026. With a healthy yield of 4.6% and a solid track record of 29 years of consecutive dividend increases, JM Smucker remains an attractive option for passive income.
While growth might be lagging, the stock’s valuation aligns with investor concerns. Even at the lower end of revenue estimates, the adjusted price-to-earnings ratio stands at an appealing 11.1.
In summary, JM Smucker could be ideal for value investors seeking high-yield dividend stocks this June.
Lee Samaha (Global X MLP and Energy Infrastructure ETF): This ETF currently provides a 4.5% yield, offering investors a way to diversify and participate in America’s energy advancements.
The fund targets midstream infrastructure companies, which generally offer stable revenue streams through long-term contracts and are less affected by fluctuations in energy prices compared to exploration and production firms.
Investments are made in companies like Kindermorgan, Cheniere Energy, and Energy Transfer, which aren’t as vulnerable to energy price shifts. Higher energy prices tend to promote investment in energy infrastructure, facilitating easier long-term contracts for these companies.
Additionally, the current administration’s stance on encouraging energy production is promising for these businesses, aiming for energy independence and export capacity. It helps that the Secretary of the Interior is Doug Burgham, a former governor from a significant oil-producing state.
Notably, one of the first actions taken by Trump’s administration was lifting restrictions on new liquefied natural gas terminal applications. This context makes the ETF quite appealing, especially with oil prices remaining above $60.
Before investing in Phillips 66, consider all these factors.
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None of the mentioned analysts hold positions in any of the discussed stocks. The Motley Fool recommends Phillips 66. Full disclosure can be found in their disclosure policy.
These two beaten dividend stocks and this ETF generate more than 4%. Here’s why it’s worth doubling in June: Originally published by The Motley Fool.
