Beat The Heat with These 3 Summertime Dividend Stocks

With soaring summer heat in America, some stocks will benefit as consumers turn up their air conditioning and spend more time indoors. This should translate to higher sales of air conditioning and related items. However, consumers may spend on other items like beverages, food, and entertainment, too.

We highlight three summertime dividend stocks that may help you beat the heat. The companies’ top and bottom lines may benefit from consumer spending. The firms are also suitable for people following a dividend growth strategy. We discuss Carrier Global Corporation (CARR), The Coca-Cola Company (KO), and Consolidated Edison (ED).

3 Summertime Dividend Stocks

Carrier Global Corporation

Carrier Global Corporation (CARR) is a market leader in air conditioning, heating, refrigeration, and building controls. It is our first summertime dividend stock. It was spun out of United Technologies in 2020. The company sells systems and products for homes, commercial buildings, trucks, and trailers. The focus on keeping spaces cool makes Carrier an obvious beneficiary of high temperatures during the summer. In fact, the share price is up nearly 17% in 2024 and 21% in the past twelve months.

We expect Carrier to benefit from high temperatures because overworked cooling systems need replacement, repair, or maintenance. This should enhance both revenue and earnings per share and, thus, dividend growth.

Since becoming an independent company, Carrier has increased its dividend annually. The company is on the Dividend Challenger list with five consecutive increases. The dividend is snowballing at a double-digit rate because of the low payout ratio of about 28%. This value, combined with the ‘B’ dividend quality grade, should give investors confidence about the dividend safety.

Carrier is trading at a price-to-earnings ratio of ~22.7X, a reasonable value compared to the S&P 500 Index. We view it as a buy now.

The Coca-Cola Company

The Coca-Cola Company (KO) is the global leader in non-alcoholic beverages and one of the most well-known companies. It sells carbonated beverages, water, sports drinks, ready-to-drink teas and coffees, energy drinks, and more in over 200 countries. The firm owns brands like Coke, Fanta, Sprite, Minute Maid, Gold Peak, Dasani, Costa, Fresca, etc. Coca-Cola should do well during the hot summer months because it sells refrigerated beverages. It is our second summertime dividend stock.

The share price is up about 13.5% year-to-date on solid performance. In the second quarter, Coca-Cola smashed earnings expectations with 15% organic sales growth, led by a 28% gain in Latin America, 30% growth in EMEA, and a 10% rise in North America. Sales rose because of volume and price increases. Coca-Cola is forecasting further growth, and it should continue to perform well.

The firm needs no introduction to dividend growth investors. Coca-Cola is one of the 66 Dividend Aristocrats and a Dividend King. It owns an impressive 62-year streak of dividend increases. Because the company is mature, dividend growth is only about 3.5% to 5% annually. However, the yield is nearly 3%, offering investors income and consistent dividend increases. Safety is excellent, with free cash flow covering the dividend and an A+/A1 upper-medium investment grade credit rating.

Coca-Cola is trading near a record high, but the P/E ratio is still ~23X below the five- and ten-year averages. Consequently, we believe the stock has more room to run, especially considering its organic sales growth.

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Consolidated Edison

Consolidated Edison is the primary regulated utility in the New York City metro area. The 100+ year-old company provides electricity to 4.0 million customers, natural gas to 1.2 million customers, and steam. The utility operates through Con Edison of New York and Orange & Rockland. It has sold most of its non-regulated businesses. We like this equity because demand for electricity increases when temperatures rise because customers use their air conditioners for extended periods.

The utility beat non-GAAP earnings estimates in the first quarter by $0.25 and reaffirmed its 2024 guidance. The combination of high temperatures and rate base growth should allow Consolidated Edison to continue performing well. The utility is investing in its infrastructure to enhance safety, reliability, and transition to clean energy and projecting a 6.4% average rate base increase out to 2028. As a result, earnings per share should rise, too.

Because of good results, the share price is up about 6% this year. Consolidated Edison yields ~3.5%, and the dividend grows between 2% and 3% per annum. Although not a high growth rate, the safety is excellent, with a 64% payout ratio and operating cash flow exceeding the dividend distribution. The utility also receives an ‘A+’ dividend quality grade, placing it in the 95^th percentile. Lastly, Consolidated Edison is one of the few businesses with a 100+ year history of paying dividends.

Consolidated Edison is undervalued compared to its 5-year P/E ratio range. We view this Dividend King as a buy now.

Disclosure: Long KO and ED

A version of this post by Dividend Power originally appeared on Investor Place and was republished with permission.

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