Collecting dividends from stocks is a great way to participate in the market while collecting passive income. Many companies use dividends as a way to pass profits directly to shareholders. And the best companies can grow their earnings and dividend payments over time.

Here’s why Brookfield Renewable (BEPC -0.33%) (BEP -0.18%), Phillips 66 (PSX -0.25%)And Global X SuperDividend US ETF (DIV -0.78%) stands out two above dividend stocks and a top exchange traded fund to buy now.

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Brookfield Renewable’s solid backlog means it’s well positioned to continue its impressive streak of dividend increases

Scott Levine (Brookfield Renewable): The prospect of boosting your passive income stream with a high-yielding dividend stock is undeniably appealing. But experienced investors know all too well that these dream opportunities can quickly turn into nightmare scenarios if companies are not financially healthy and payments are cut to prevent financial ruin. So it’s understandable that Brookfield Renewable would raise skepticism with its 5% forward dividend yield, but a closer look at the company’s financials shows that this high-yield stock is worth serious consideration.

Brookfield Renewable operates a sizeable portfolio of growing renewable energy assets from the Americas to Europe and Asia. For example, since 2020, the company’s portfolio has doubled in terms of generation capacity to approximately 37 gigawatts (GW) and will continue to grow at a steady pace in the near future, likely supported by 65 GW of late-stage projects. in the pipeline. Since Brookfield Renewable’s business model relies on signing long-term power purchase agreements with customers, this bodes well for supporting future dividend growth.

Regarding dividends, management is targeting steady growth of 5% to 9% for the foreseeable future. Although the company’s past performance does not guarantee the same results in future years, it must be acknowledged that it has a strong history of increasingly rewarding shareholders. Brookfield Renewable increased distribution by 6% over 20 years compound annual growth rate.

Phillips 66 pours profits into capital return program

Daniel Foelber (Phillips 66): Phillips 66 has had its ups and downs over the last few years. The decline in crude oil prices in 2020 reduced the costs of refineries, but many refineries booked losses that year as demand for products such as jet fuel, gasoline and diesel also decreased. Refinery stocks, including Philips 66, rose from 2021 to early 2024 as economic growth increased product demand, sales increased and margins improved. However, as you can see in the chart below, sales and margins have been decreasing recently. And lower margins generally correspond to a lower stock price for Phillips 66.

PSX data Y Charts

Phillips 66 looks great Dividend-paying value stocks to buy now. The company’s strategy and capital allocation are based on mid-cycle targets, so it is not caught up in short-term ups and downs in refinery margins. Phillips 66 also has clearly defined return-on-capital targets. Since Phillips 66 and ConocoPhillips Phillips 66, which was spun off in 2012, has increased its dividend every year and bought back a third of its outstanding shares. As of July 30 prices, Phillips was targeting a total shareholder distribution return of 9.1%, with 3.1% from dividends and 6% from share repurchases. Since then, the yield has risen to 3.5% as the stock price has continued to fall. But the most important takeaway here is that Phillips 66 returns more value to shareholders through buybacks than through dividend payments.

Phillips 66 has been a fairly predictable company in terms of capital allocation. It tends to pause or pull back on share buybacks and capital spending when earnings fall, but it consistently rewards shareholders by increasing the dividend regardless of market conditions. You can see how this pattern plays out in the chart below, which shows Phillips 66’s share buybacks and capital spending since the spinoff.

PSX Stock Buybacks (TTM) data Y Charts

As a result, Phillips 66 is an excellent high-yield dividend stock because it can grow its dividend even during industry-wide downturns.

A high-yield ETF that pays monthly distributions

Lee Samaha (Global X SuperDividend US ETF): It’s not hard to find high-yield stocks, but it’s not so easy to find high-yield stocks that can increase that dividend. There’s often a reason why a stock is trading at a high yield, and most of the time it’s because market pricing doubts that the dividend is sustainable.

Therefore, there is always a risk in recklessly pursuing a high-return investment strategy. This risk is mitigated by purchasing an ETF such as the Global X Super Dividend US ETF, which aims to invest in a basket of 50 high-yield stocks in the US market. This strategy helps diversify stock specific risk.

However, the strategy will tend to be overweighted on certain market sectors, leading to sector-specific risks. For example, at the time of this writing, four sectors accounted for more than 10% of assets in the ETF. Energy stocks make up 20% of the ETF, with utilities coming in second at 19.6%, real estate at 18.6%, and consumer staples at 10.9%. Bottom line, if you’re uncomfortable being overweight in these sectors, this ETF isn’t for you.

On the other hand, the ETF makes a monthly distribution, and the highest-yielding sectors are likely to change over time. Therefore, you can think of high-yield ETF investing as buying into unloved sectors in relatively mature industries. There is nothing wrong with this, and the financial discipline imposed on management committed to paying a sustainable dividend provides a stable basis for creating shareholder value.

Therefore, many investors will find this ETF and its 6% dividend yield a valuable addition to a high-yield portfolio.