S&P 500 Recovery and Investment Opportunities
The S&P 500 is showing a significant recovery as investors reflect on past macro challenges and focus on long-term growth prospects.
This resurgence has elevated the value of many stocks and exchange-traded funds (ETFs), including major indexes like the S&P 500, which may seem relatively pricey. However, there are still some appealing opportunities for those who know where to search.
For instance, Phillips 66, JM Smucker, and the Global X MLP and Energy Infrastructure ETF could be excellent choices for investors interested in generating passive income from dividends and ETFs.
Shareholder Rewards Remain a Focus
Scott Levine (Phillips 66): Many investors have turned away from oil and gas stocks, especially as energy prices soared this past year. Phillips 66 has seen its shares drop over 18% during this time, which some might view as a prime buying opportunity for solid energy investments that currently yield about 4.3%.
The company isn’t just appealing due to its high-yield dividends. Since 2012, they’ve consistently returned capital to shareholders, all while balancing the company’s financial health. In fact, over the past five years, Phillips 66 has maintained an average payout ratio of 72%.
While the company has a diverse operation, its refining segment is crucial, accounting for roughly 38% of its adjusted EBITDA from 2021 to 2024. Phillips 66 has successfully decreased refining costs and aims for further reductions by 2027. The goal is to drop the cost per barrel from $6.98 in 2022 to $5.90 in 2024, with a target of $5.50 by 2027.
Additionally, recent activist investor involvement has led to Elliott Investment Management securing two board seats, possibly fueling further dividend growth.
Investing in Bargain High Yield Stocks
Daniel Folver (JM Smucker): JM Smucker faced a tough day recently, with its stock plummeting 15.6% in just one session—a stark contrast to its usual steady, slow-growth reputation.
Currently, the stock is at a low not seen in over a decade. The company has a varied portfolio that includes well-known brands across several categories, including coffee, snack foods, and pet foods.
However, a challenge lies in some of its products being discretionary. This, combined with inflation and tariffs, has affected profits. While that might deter some investors from considering JM Smucker, the company boasts a strong free cash flow (FCF) of $816.6 million, exceeding its $455.4 million in dividends, with expectations of reaching $875 million by fiscal year 2026. With a yield of 4.6% and 29 consecutive years of dividend increases, it remains a compelling option for passive income seekers.
Though growth may be slower, current valuations already seem to reflect investor anxiety, with a relatively low price-to-earnings ratio of 11.1 even at conservative revenue guidance.
Diversified Energy Investment with Attractive Yields
Lee Samaha (Global X MLP and Energy Infrastructure ETF): This ETF offers a 4.5% yield, providing a way for investors to gain diversified exposure to America’s evolving energy landscape.
The fund invests in midstream infrastructure companies, known for their stable income from long-term contracts and reduced sensitivity to fluctuating energy prices compared to exploration and production firms.
Key investments include companies like Kindermorgan, Cheniere Energy, and Energy Transfer, which benefit from the stability of long-term contracts, particularly as high energy prices incentivize further investments in energy infrastructure.
The current administration is also focused on enhancing energy production and achieving self-sufficiency, making investments in this ETF more attractive, especially with oil prices remaining above $60.
