Do you have $500? 2 dividend stocks down 19% and 32% to buy now

So far, 2022 has been a turbulent year for the stock market. Many growth stocks are down 60% or more from their highs, and the volatility has also spread to the industrial sector and the renewable energy industry. caterpillar ( CAT -1.43% )one of the world’s largest makers of equipment used in the construction, oil, gas and mining industries, is down nearly 20% from its all-time high, while the infrastructure company renewable energy Brookfield Renewable Partners ( BEP -0.56% )( BEPC -0.49% ) is down more than 30% from its peak.

Each of these companies has a growing business and passes a slice of its profits to shareholders through a stable dividend. Here’s what makes them great dividend-paying stocks to buy now.

Image source: Getty Images.

Caterpillar’s business is in great shape

When looking at a stock that has fallen from a high, it can be helpful to go back in time and look at company and stock market performance at the time of the peak – in this case, June 4, 2021.

CAT All-Time Highest Percentage Chart

CAT Percentage Off All-Time High data by YCharts.

Last June, President Biden’s infrastructure bill was eagerly awaited, which will benefit companies like Caterpillar that sell earthmoving and heavy construction equipment. There was also a widespread feeling that the worst of the COVID-19 pandemic might be behind us. What followed were the variant delta and the variant omicron waves.

Last summer, businesses were optimistic that supply chain concerns would soon fade away, and there was a common view that rising prices around the world would be a transitory phenomenon. Today, the year-over-year inflation rate is 7.5% and the Federal Reserve is expected to start raising its benchmark federal funds interest rate as early as March.

Add all these changes and it makes sense that Caterpillar shares sold off in the short term. However, the company’s fundamentals show that its business has rebounded well in 2021 and is well positioned for another strong year in 2022.

Caterpillar generated record net profit in 2021 despite falling revenue, reflecting it increasing profit margins despite higher raw material and shipping costs.

Table of CAT income (annual)

CAT Revenue Data (Annual) by YCharts

Caterpillar is also bringing in more than enough free cash flow to cover its dividend obligations, which means inflation could get worse and Caterpillar would still be able to support its cash payments. At the current share price, its dividend yields 2.2% and the company has increased its payouts for 27 consecutive years.

A balanced investment in renewable energies

As investors worry about rising capital costs to fund renewable energy projects, shares of Brookfield Renewable Partners are down 32% from their January 2021 high.

At first glance, the company’s recent results don’t look good. Its negative net income and negative free cash flow indicate an unsustainable dividend. Yet, look deeper and you will see that Brookfield Renewable’s business is doing very well.

Brookfield invests in renewable energy and decarbonization infrastructure projects. These projects have decades-long time horizons and inflation-proof contracts. Therefore, a better metric to look at to assess the health of the business is funds from operations (FFO), which factors depreciation and other expenses into the bottom line to give a more realistic representation of cash flows. cash.

Brookfield’s FFO in 2021 was $1.45 per share, 10% higher than 2020. That was enough cash to fund its 5% distribution at $1.28 per share, giving it a dividend yield of 3.6% at the current share price. With over 15 gigawatts (GW) of capacity under construction and a development pipeline exceeding 62 GW, Brookfield is a long-term investment in renewable energy that also provides a hearty passive income stream.

Two good buys now

Investors shouldn’t ignore the near-term challenges these companies – and their industries – face. Slower economic growth will affect Caterpillar’s business. Increased competition in the renewable energy sector, coupled with rising interest rates, will impact Brookfield Renewable. However, none of these challenges can derail the growth potential of each of these companies for decades to come.

Investing equal amounts of money in shares of Caterpillar and Brookfield Renewable would give an investor an average dividend yield of 2.9%. These payouts can help reward investors for their patience as they wait for longer-term themes to outweigh short-term headwinds and send these stocks higher.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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