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2 Top Dividend Stocks That Wall Street Is Sleeping On

The S&P 500 index is down 19% so far this year. The heightened volatility and uncertainty in the markets have made investors wary. However, it's also an opportune time to buy fundamentally strong stocks for the long term.

Here are two under-the-radar dividend stocks to add to your watch list today.

Algonquin Power & Utilities

Algonquin Power & Utilities (NYSE: AQN) is a diversified Canadian utility that operates through two segments. Its regulated services group runs electric, natural gas, water distribution, and wastewater collection utilities in the U.S., Canada, Bermuda, and Chile. The company's renewable energy segment operates renewable and thermal generation assets in North America and globally. The regulated services segment contributed 88% of Algonquin's revenue and 94% of its operating income in 2021.

Algonquin has a solid track record of growth. Between 2010 to 2020, the company grew its dividend at a compound annual growth rate (CAGR) of 10%. However, rising interest rates may impact the company's dividend growth rate in the coming years. In the first quarter, the company raised its dividend by 6%.

Image source: Algonquin Power & Utilities.

In December, Algonquin Power & Utilities anticipated its adjusted per-share earnings to grow at a CAGR of 7% to 9%. The company targets a long-term payout ratio of 80% to 90% of its earnings. Management expects the company may exceed this ratio in the short term, but it'll mostly be in this range over the long term, assuming a 6% dividend growth.

Algonquin itself is not expecting dividend growth near 10% going forward. And with rising rates, maintaining it at 6% may also be a stretch, given that the payout ratio is already high.

Yet, despite a slower growth rate, Algonquin Power & Utilities presents a compelling opportunity at a dividend yield of 5.6% as of this writing. The company's dividend growth track record, steady cash flows from regulated operations, and growth potential for its renewable business makes it attractive. Algonquin Power & Utilities expects to spend $12.4 billion on growth projects from 2022 to 2026, which should fuel its earnings growth in the years to come.

TC Energy

Canadian pipeline operator TC Energy (NYSE: TRP) boasts more than two decades of dividend growth. The company's regulated and long-term contracted assets contribute to the stability of its earnings. In the first quarter, natural gas pipelines accounted for roughly two-thirds of TC Energy's earnings, while its liquids pipelines contributed roughly 23% of its earnings.

TC Energy operates natural gas pipelines in the U.S., Canada, and Mexico. The company's natural gas operations are regulated in all three countries. Such operations allow TC Energy to recover costs it incurs to operate the pipelines through tolls from customers. The tolls typically include a return on the company's invested capital (or rate base) along with a recovery of the rate base over time through depreciation. As a result, earnings from these operations are largely stable and predictable. Likewise, TC Energy's liquids pipeline capacity is backed mainly by long-term contracts with fixed monthly payments.

Image source: TC Energy.

TC Energy has secured growth projects requiring 22 billion Canadian dollars in investments between 2022 to 2026 across its segments. These should support the company's expectations for annual dividend growth of 3% to 5% in the coming years. Overall, with a yield of 5.3%, TC Energy is a top dividend stock right now.

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Rekha Khandelwal has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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