The Smartest Dividend Stocks to Buy With $300 Right Now

In a year when the stock market soared 29%, primarily driven by the Magnificent Seven -- accounting for approximately 30% of the S&P 500 index -- investors may want to consider portfolio diversification. One proven long-term strategy is investing in dividend-paying stocks, which offer income and stability due to the discipline required by management to pay -- and, ideally, increase -- distributions.

Let's examine three dividend-paying stocks, priced at a combined $300, that appear reasonably valued or undervalued and that either recently began paying dividends or have a long history of paying and increasing them.

1. AerCap

While airlines have historically been bad investments, this company, which leases airplanes, has not been one of them. AerCap (NYSE: AER), the market leader in the industry, has rewarded investors handsomely in 2024 with a total return of over 30%.

More importantly for income-seeking investors, the company initiated its first-ever quarterly dividend earlier this year at $0.25 per share, which equates to a 1% annual yield. For any dividend-paying stock, it's essential to look at its payout ratio -- the percentage of a company's earnings paid out as dividends -- to ensure it can afford to reward shareholders.

Generally, a healthy payout ratio is below 75%, giving management flexibility in allocating capital. Based on management's 2024 guidance of $10.70 adjusted earnings per share (EPS), AerCap has a very healthy payout ratio of approximately 9%.

In addition to the dividend, AerCap management is aggressively buying back its stock, increasing investors' ownership stake. Year to date, it has authorized $1.5 billion in share repurchases and bought back 6.3% of its outstanding shares. CEO Aengus Kelly recently noted that the company's dividend and share repurchases "demonstrate the high level of confidence we have in the future profits and cash flows of AerCap."

The stock is trading at close to a two-year high in terms of price-to-book ratio of 1.1, meaning it is valued more than the company's assets. However, given the company's capital allocation strategy, in which investors should continue to benefit from dividends and share repurchases, the stock is well worth the slight premium.

AER Shares Outstanding data by YCharts.

2. Autoliv

While Autoliv (NYSE: ALV) may not be a household name, it plays a vital role in saving lives as a leading innovator in automotive safety systems, including airbags and safety belts. Recently, the company raised its quarterly dividend by 3% to $0.70 per share, equating to an annual yield of 2.8%.

Autoliv suspended its dividend in 2020 when car sales slowed during the pandemic's height and its payout ratio surpassed 100%. However, it reinstated the dividend in 2021 and has raised it annually since. Today, the company's payout ratio is only 35%, giving management plenty of flexibility with its capital allocation strategy.

Like AerCap, the company has prioritized share repurchases over the past three years, reducing its outstanding shares by 10%. Furthermore, management recently announced an extension to its current share repurchase program, in which it will repurchase up to 7.5 million shares or up to $550 million, whichever comes first.

The stock is down nearly 10% in 2024, partly due to a decline in sales and management cutting its guidance for 2024. Autoliv's net sales were down 1.6% in the third-quarter to $2.55 billion. Management recently reduced its 2024 organic sales outlook from 2% to 1% growth, pointing to low customer demand and a 4.8% decrease in consumer vehicle production year over year.

Nonetheless, what makes Autoliv particularly attractive in a hot market is that the stock trades at a three-year low valuation at 13 times trailing earnings. Given the cyclicality of car sales, it's a matter of time before a shift happens in Autoliv's favor, presenting an opportunity to invest in a global leader in auto safety at a substantial discount.

ALV PE Ratio data by YCharts.

3. NextEra Energy

The final stock on this list is NextEra Energy (NYSE: NEE), one of the largest electric utilities in the world. The stock is up approximately 19% in 2024 and currently pays a quarterly dividend of $0.515 per share, equating to an annual yield of 2.8%. More impressively, management has paid and raised its dividend for 30 consecutive years. The company is likely to raise its dividend in early 2025. Investors should expect at least a 10% dividend increase, according to previous guidance from management.

NextEra Energy can afford the increase with a trailing 12-month payout ratio of 59.5%, and its revenue and earnings are on the rise. Specifically, the company generated $7.6 billion in operating revenue for its most recently reported quarter. That translates to $1.03 adjusted earnings per share (EPS),representing a year-over-year increase of 5.5% and 9.6%, respectively. Looking ahead, management projects its adjusted EPS to grow between 6% to 8% annually through 2027.

Unlike AerCap and Autoliv, this company does not prioritize share repurchases. Consequently, its outstanding shares have increased by nearly 5% over the past three years. A key reason why is that NextEra Energy carries $80.5 billion in net debt, which required close to $5 billion in servicing over the last 12 months.

NEE PE Ratio data by YCharts.

This high level of debt is typical for a utility company due to the expenditures required to build and maintain its extensive infrastructure. However, NextEra Energy stands out by having the lowest adjusted debt-to-total capitalization ratio among its peers -- just 50%, compared to a range of 58% to 70% for others in the sector.

Given its dividend history and projected growth, NextEra Energy remains a compelling stock for income-focused investors. And with a trailing price-to-earnings ratio of 21.7 -- slightly below its 10-year median of 22.5 -- it offers a more than fair valuation.

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See 3 “Double Down” stocks »

*Stock Advisor returns as of December 9, 2024

Collin Brantmeyer has positions in AerCap and Autoliv. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends AerCap. The Motley Fool has a disclosure policy.