The S&P 500 is coming off of back-to-back years of 20%-plus annual gains for the first time in over 25 years. But corporate earnings haven't grown at the same rate, so many companies' valuations have become more expensive. However, there are plenty of opportunities to find quality companies at compelling valuations if you know where to look.
These three Fool.com contributors pegged 3M (MMM 1.90%), Essential Utilities (WTRG -0.48%), and Equinor (EQNR 3.52%) as standout dividend stocks to buy in 2025. By investing in equal parts of each stock, you can expect to earn a 3.8% yield -- which is roughly 3 times higher than the S&P 500 yield of 1.2%. Here's why all three stocks are worth buying in 2025.
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Restructuring could drive 3M stock much higher
Lee Samaha (3M): With a 2.2% dividend yield, 3M isn't quite the dividend stock it used to be. However, investors won't care too much about that because after years of underperformance, the stock rose by 42% in 2024. Moreover, if CEO Bill Brown's plan to rejuvenate the company comes to fruition, the stock can outperform again in 2025.
3M's lackluster growth over the last decade means there's ample opportunity to improve operational performance. That starts with restoring its reputation for innovative new product introductions (NPIs), a key part of Brown's long-term plans. While investments in research and development are underway, 3M's management team will be busy implementing lean manufacturing techniques, improving the company's asset utilization, reducing complexity in its supply chain (primarily by consolidating suppliers), and improving its on-time in-full (OTIF) deliveries.
These supply chain improvements will lead to significant improvements in cash flow generation as they allow 3M to improve inventory turnover (so less need to tie up cash in holding inventory). Furthermore, in the near term, 3M is cutting less profitable product lines (representing about 5% of its consumer sales) and fast-tracking some NPIs in product line extensions.
With the healthcare business (a segment that the previous management devoted a lot of time and effort into with disappointing results) now spun off as a separate company, the current senior management has a good opportunity to improve operational performance at 3M. And trading at 16.3 times estimated 2025 earnings, 3M looks like an excellent value opportunity.
Income investors will want to dip their toes in the flood of dividends that Essential Utilities stock provides
Scott Levine (Essential Utilities): From growing an emergency fund to reducing wasteful spending, investors have made all sorts of New Year's resolutions. One common plan for the new year, for example, is growing one's passive income stream. Of the many great dividend stocks available to investors, water utility stock Essential Utilities -- along with its enticing 3.6% forward dividend yield -- is an especially great opportunity right now, considering its inexpensive valuation.
Having boosted its dividend 34 times over the past 33 years, Essential Utilities has demonstrated a steadfast commitment to returning capital to shareholders. And the raises aren't mere drops in the bucket either. From 2015 to 2024, Essential Utilities has hiked its dividend at a 7% compound annual growth rate (CAGR). While it's impossible to know the future, it seems likely that future dividend growth is also in store as management projects earnings per share will increase at a CAGR of 5% to 7% from 2025 to 2027. Because the company primarily operates in regulated markets -- about 99% of earnings come from regulated water and wastewater operations -- investors can be confident that the company will achieve management's projections.
With shares of Essential Utilities changing hands at 12.4 times operating cash flow, a discount to its five-year average cash flow multiple of 17, today seems like a great time to click the buy button on Essential Utilities stock.
Equinor is deep in the bargain bin
Daniel Foelber (Equinor): Norwegian energy giant Equinor was the worst-performing integrated oil major in 2024.
Equinor and fellow European majors now sport less expensive valuations than ExxonMobil and Chevron.
Part of the reason Equinor, in particular, may be so cheap is because of changes to its capital return program and renewable energy investments.
For the last three years, Equinor investors have enjoyed a regular dividend as well as an extra dividend payout. The payments have been massive -- most recently $2.80 per share in 2024 -- representing a more than 10% yield. At the same time, Equinor was aggressively repurchasing stock, reducing its share count by 15.6% in the last three years. In total, Equinor returned over $14 billion to investors through dividends and buybacks in 2024.
Equinor had always made it clear that a capital return program of this scale wasn't sustainable over the long term. Rather, the company used outsize profits to pay down debt and return capital to shareholders. But it still plans to return $8 billion to $10 billion to investors in 2025, including around $4 billion to $6 billion in buybacks and $0.02-per-share raises to the ordinary dividend. So even without the extra juice from the special dividend, Equinor still sports a yield of 5.5%.
Equinor has been building out its renewable energy portfolio, led by offshore wind. The Norwegian continental shelf is ideally suited for offshore wind projects. Elsewhere, Equinor has been involved in leases worldwide, including off the U.S. East Coast. On Dec. 23, Equinor completed a 10% stake in Danish wind giant Orsted. The stake is valued at $2.3 billion, but Equinor paid an average weighted price that is 14.4% greater than the current price of the stock at the time of this writing. Wind will be an integral part in helping Equinor achieve its carbon reduction goals. However, the wind industry has been in a downturn, which is likely hurting the near-term investment thesis in Equinor.
Still, the company stands out as a balanced energy stock for 2025. Equinor has been exploring for and producing oil and gas from the North Sea for decades. It is highly profitable and now sports an incredibly healthy balance sheet with more cash and cash equivalents than long-term debt. The valuation and yield are compelling, especially relative to other majors.
However, investors looking for more focus on oil and gas may want to consider a U.S. major like ExxonMobil or Chevron, as these companies are putting capital to work in expanding their oil and gas production portfolios and lowering their average production costs per barrel. Equinor continues to invest in new global oil and gas projects as well, but it doesn't have as attractive onshore acreage yet.
