Megacap tech companies contributed much of the gains that the S&P 500 (^GSPC 0.16%) index saw in 2024. After all, how much impact can dividend payments of a couple of percentage points have when the largest growth stocks are producing epic double-digit (and sometimes triple-digit) percentage returns? Still, plenty of dividend stocks and exchange-traded funds (ETFs) also managed to outperform the benchmark index last year. Some of these stocks are expected to continue to strong performance into 2025 as well.
Here's why three Motley Fool contributors feel that Kinder Morgan (KMI 1.73%), Delta Air Lines (DAL 0.39%), and the Global X MLP & Energy Infrastructure ETF (MLPX 1.21%) remain solid buys in 2025, even after their excellent performances last year.
Image source: Getty Images.
Kinder Morgan is a high-yield dividend opportunity
Scott Levine (Kinder Morgan): In the first half of 2024, shares of Kinder Morgan didn't perform so exceptionally -- they essentially kept pace with the S&P 500. In the second half, however, it was a much different story as the midstream stock rose by 38%. As a result, Kinder Morgan stock ended up with a 55% gain for the year. Despite that impressive rise, the shares -- and their 4.1% forward dividend yield -- are still attractively valued.
Kinder Morgan is one of the premier natural gas midstream companies in the United States. It operates about 66,000 miles of natural gas pipelines that transport about 40% of the natural gas in the country. Because the company often inks long-term contracts with its customers -- deals that include provisions to account for inflation -- management benefits from outstanding foresight into future cash flows. That makes it easier to plan for capital expenditures such as acquisitions and dividend payments. It also assists the company in strengthening its financial position through the strategic repayment of debt, an endeavor that has helped the company decrease its leverage by about 26% from 2016 through 2024. Further illustrating the company's robust financial health, management projects that in 2025, the company's net-debt-to-adjusted-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio will be 3.8.
Over the past seven years, Kinder Morgan has hiked its dividend at a 12.6% compound annual rate. A peek at the company's project backlog reveals plenty of growth opportunities in the coming years that should provide it with the ability to further boost its payouts to investors. Of the $5.1 billion in projects in the company's backlog, $3.6 billion are natural gas projects with an average estimated EBITDA multiple of 5.4. For investors seeking to energize their passive income streams right now, Kinder Morgan represents a great option.
Delta Air Lines can continue its ascent in 2025
Daniel Foelber (Delta Air Lines): Delta Air Lines stock rocketed higher in 2024 amid a general boom for airline stocks.
The airline industry was one of the sectors that was hardest hit by the COVID-19 pandemic. Then came the period of supply chain challenges and high inflation. Navigating those obstacles was rough, but Delta did so, and eventually returned to its pre-pandemic form, which set the stage for a massive run-up in its stock price last year.
Delta is well-positioned to keep up its momentum in the new year. Its partnership with American Express is helping to diversify its revenue beyond passenger tickets while boosting loyalty and engagement. These efforts should partially insulate Delta's performance from the ebbs and flows in the broader economy.
The airline's debt burden understandably soared in the early phases of the pandemic, reaching roughly $33 billion in total debt by the end of 2022. Since then, management has cut it nearly in half. As of 2024's third quarter, Delta had reduced its total debt burden to $17.7 billion with plans to reduce it an additional $1.6 billion by the end of the year. Delta's balance sheet remains fairly leveraged, but the situation is improving.
Even in good economic times, airline stocks tend to sport dirt-cheap valuations due to the industry's cyclical nature and a poor track record of long-term returns. Even after its monster performance in 2024, Delta still has a price-to-earnings (P/E) ratio of just 8.5, and a forward P/E ratio of 8.2 -- a reflection of just how beaten down the stock was heading into 2024.
With a modest 1% dividend yield at the current share price, Delta isn't a passive income powerhouse. But it stands out as a good buy for investors who think consumer demand for travel will remain strong and expect Delta to continue diversifying its business.
There's still room to run for energy infrastructure companies
Lee Samaha (Global X MLP & Energy Infrastructure ETF): With stock price gains of almost 36% in 2024, this ETF easily beat the S&P 500's rise of 23.3%. Its outperformance gets even better on a total return basis (including dividends reinvested). On that score, the ETF clocked returns of almost 43% compared to the S&P's 25%.
With such returns in its immediate past, it is understandable that some investors might doubt that the Global X MLP & Energy Infrastructure ETF has the potential to deliver another market-busting year in 2025. I think it's entirely possible, and its current dividend yield of 4.3% doesn't hurt its chances.
As the name suggests, this ETF invests in master limited partnerships (MLPs) and other players in the midstream energy infrastructure space, such as pipeline and storage companies. The five largest positions in its current portfolio of 25 stocks are high-yielding energy infrastructure companies such as oil and natural gas pipeline storage and renewable energy company Enbridge, gas processing and transportation company Williams Companies, oil and gas midstream company Oneok, gas pipeline and terminal operator Kinder Morgan, and LNG provider Cheniere Energy.
In a nutshell, it's a play on the long-term growth of the oil and natural gas industry in the U.S. and the potential for producers to export liquefied natural gas via terminals in the U.S. With a more fossil-fuel-friendly administration coming to the White House, growth on that front looks more likely. In addition, there's been something of a shift over the last year in how the market views the outlook for fossil fuels.
It's not so much that investors are denying that an energy transition is underway, but that more of them are coming to recognize that the costs and complexities of shifting to renewable energy sources may have been underestimated in the race to net zero. That's leading the market to conclude that the pace of the transition will likely be slower than many previously expected, and in that light, the role of natural gas, in particular, as a transition fuel is being positively reassessed. That should mean more profits for longer for natural gas companies, and particularly for the MLPs that store and transport it.
