We recently published a list of the 9 best high-yield dividend growth stocks to buy according to hedge funds. Since Black Hills Corporation (NYSE:BKH) is part of the list, the stock needs a deeper look. But first, let’s take a look at why analysts believe investing in dividend stocks would make sense in 2024, especially when rates are expected to remain high.

Dividend stocks almost never go out of fashion thanks to the allure of steady payment checks and hedge against uncertainty these equities provide, especially during troubled times. A latest report from Wisdom Tree cited data from American economist Robert J. Shiller, who calculated in a research paper that since 1957, dividends on average grew by 5.7% per year, easily surpassing the 2% inflation rate every year. Over the past 64 years, dividends fell only during six years, while stock prices declined in 18 years during the same period.

Dividend Growth or High Yields?… Or Both?

Should you invest in high-yield dividend stocks or dividend growth stocks with decades of consistent dividend increases to their record? This has been a topic of discussion in both Wall Street and academia for over the past several decades. But experts believe that during volatile times when interest rates are high, investing in high-quality dividend stocks with high yields and growth track record seems to be the best and safest option for investors. Sterling Capital in a latest report talked about this in the context of rate hikes:

“While we have been through a period of 11 Federal Reserve (Fed) rate hikes and uncertain macroeconomic conditions, we believe companies that can pay a secure and growing dividend demonstrate the strength of an investment. As we have shared in recent months in our discussion of advantaged value, companies with these characteristics tend to have differentiated positions, possibly achieving strong market shares with the benefits of economies of scale and resilient balance sheets. They are typically able to play both offense and defense as the economy moves through uncertain times.”

Dividend Growth Stocks Over High-Growth AI Stocks?

Answering a question about why he’d prefer dividend growers over high-growth software companies while talking to CNBC back in March, David Bahnsen, the CIO at Bahnsen Group, said that he has “tons of track record” to prove that dividend growers perform better in the long run, and that “ultimately” cash flow is “king.” The analyst gave examples of Tesla and Apple who were not performing well in terms of stock prices at that time, and said that “those things” don’t end well, referring to strong bull runs of tech companies.

Asked whether he’d still allocate some portion of his portfolio to AI, Bahnsen said that “margins don’t hold with that kind of revenue” growth,” referring to high valuations of companies in the AI space. The investor said he owns dividend-growing stocks like Broadcom which is very much exposed to AI but also have a strong dividend growth history and strong cash flows.

Concerns About Nvidia

Bahnsen during the interview in March also said that NVDA was continuing to jump “vociferously,” sharing valuation concerns about the company. As of the end of March, NVDA was trading at around $903, while today it has reached $1105. Many other analysts are joining the group of Nvidia skeptics who believe the stock’s valuation has gone too high. Our latest research unlocked many AI-related stocks trading at attractive valuations. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Methodology

For this article we first scanned Insider Monkey’s database of 919 hedge funds updated as of the first quarter of 2024 and listed down dividend-paying stocks with yields over 4% and at least 10 years of consistent dividend growth with strong hedge fund sentiment. From the long list of stocks we got as a result, we chose dividend stocks with the highest yields and consecutive number of years of dividend increases. We further narrowed down our selection to the stocks from this group and chose nine stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). 

Some of the most popular dividend stocks to own according to hedge funds include American Express Company (NYSE:AXP), QUALCOMM Incorporated (NASDAQ:QCOM), and Applied Materials, Inc. (NASDAQ:AMAT), in addition to high-yield dividend growers like Altria.

Black Hills Corporation (NYSE:BKH)

Number of Hedge Fund Investors: 27

South Dakota-based natural gas company Black Hills Corporation (NYSE:BKH) has a dividend yield of about 4.7%, and Black Hills Corporation (NYSE:BKH) has upped its dividend for 54 years without a break. Black Hills Corporation (NYSE:BKH) provides natural gas and electricity to residents in South Dakota. Since the pandemic Black Hills Corporation’s (NYSE:BKH) net income has seen consistent increases despite headwinds in the utilities sector, thanks to the company’s smart cost adjustments and capital discipline.  Black Hills Corporation (NYSE:BKH) expects long-term EPS growth to come in at 4% – 6%. Black Hills Corporation (NYSE:BKH) also plans to allocate $4.3 billion through 2024 – 2028 in future growth.

Analysts believe one of the biggest growth catalysts for Black Hills Corporation (NYSE:BKH) is an expected rise in population in South Dakota as housing is cheaper (relatively) and job opportunities are growing. Black Hills Corporation (NYSE:BKH) has been able to raise dividends despite headwinds in the industry. In January, Black Hills Corporation (NYSE:BKH) upped its dividend by 4%.

In addition to BKH, hedge funds are also buying American Express Company (NYSE:AXP), QUALCOMM Incorporated (NASDAQ:QCOM), and Applied Materials, Inc. (NASDAQ:AMAT).

Black Hills Corporation (NYSE:BKH) ranks 4th in Insider Monkey’s list of the 9 Best High-Yield Dividend Growth Stocks to Buy Now.

If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.