We recently published a list of 15 Best Dividend Stocks To Buy and Hold. In this article, we are going to take a look at where Pentair plc (NYSE:PNR) stands against other best dividend stocks to buy and hold.
In recent years, many investors have shifted their focus from dividend-paying stocks to high-growth secular-themed stocks that typically don’t offer dividends. However, history shows that investors shouldn’t overlook dividends. According to estimates by AGF Investments, the long-term case for dividend-paying equities is strong: if a dollar was invested in the broader market Index in 1927 without reinvesting dividends, it would be worth $243 today. In contrast, that same dollar with dividends reinvested would be worth $3,737.
Because of this earnings and income potential, income investors often turn to dividend stocks when the market shifts. While these stocks may not be keeping pace with the broader market, analysts remain optimistic about their future prospects. A report from J.P. Morgan indicated that global equities are approaching a notable period of dividend growth, not just due to a cyclical rise in payouts but also because of a long-term increase in dividend momentum. Over the past 20 years, global dividends per share have grown at an annual rate of 5.6%, but analysts predict this growth will accelerate to 7.6%. The main factor driving this increased growth is the low starting point of payout ratios (dividends as a proportion of earnings). During the Covid pandemic in 2020, many companies cut their dividends, leading to a 12% drop in global dividends, which was a steeper decline than during the Global Financial Crisis. This was a rational response to an uncertain environment with unpredictable effects and duration.
READ ALSO: 10 Most Promising Dividend Stocks According to Hedge Funds
However, equity markets rebounded strongly as global earnings soared, primarily driven by Big Tech and, more recently, AI. Since dividends are typically determined by conservative boards and management, they tend to lag behind earnings during significant earnings surges. As a result, dividend payout ratios are now near their lowest levels in 25 years, meaning companies are paying out less compared to historical averages. Simply returning to a more typical payout level could contribute an additional 2% annual growth over the next five years. This isn’t just a theoretical scenario—global dividend growth has already started to exceed earnings growth in seven of the past eight quarters, as reported by J.P. Morgan.
While recent market gains have largely been driven by a small group of non-dividend-paying companies, this is starting to shift. In 2024, many big tech companies initiated their dividend policies, highlighting the importance of returning capital to shareholders and positioning dividends as a complement to share buybacks. The report highlighted that although the dividend yields from these tech giants are initially modest, the total amount they are committing to dividends is significant—$17 billion collectively over the next year. More importantly, these actions send a strong signal to the market.
Income-focused investors have increasingly turned their attention to dividend income, making it a more prominent part of personal earnings. A report by S&P Dow Jones Indices reveals that dividend income has risen from 2.68% in Q4 1980 to 7.88% in Q2 2024, demonstrating its growing importance as an income source. The report further highlighted that since 1936, dividends have accounted for over a third of total equity returns, with the rest coming from capital gains.
Our Methodology
For this list, we scanned through various credible sources, including Business Insider, Forbes, Morningstar, and Barron’s, and identified their consensus picks from their recent articles. Next, we sorted these companies based on the number of hedge funds in Insider Monkey’s database that owned stakes in these companies, as of Q3 2024.
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).
A factory worker with protective goggles and a hardhat inspecting a water filtration system.
Pentair plc (NYSE:PNR)
Number of Hedge Fund Holders: 47
Pentair plc (NYSE:PNR) is an American water treatment company that offers related services to its consumers. According to analysts, there is room for growth in its residential and industrial water technology solutions, as well as its residential pool products, as lower interest rates encourage increased spending. This is especially significant for pool products, where discretionary purchases tend to align with housing market trends. The stock is delivering solid returns, surging by over 37% in the past 12 months.
In the fourth quarter of 2024, Pentair plc (NYSE:PNR) posted revenue of $973 million, which fell by 1% from the same period last year. However, the revenue surpassed analysts’ estimates by $2.05 million. Each of the company’s Move, Improve and Enjoy Water segments achieved record margins for another consecutive year following the nVent separation in 2018. In the Flow segment, the Commercial business continued to expand, while efforts were made to refine the go-to-market strategy within the Industrial. In Water Solutions, filtration sales experienced another year of growth, while the Pool segment returned to sales growth, supported by strong aftermarket demand.
Pentair plc (NYSE:PNR) also generated strong results from a cash point of view. The company generated $767 million and $693 million in operating cash flow and operating cash flow, respectively. It currently pays a quarterly dividend of $0.23 per share, having raised it by 8.7% in December 2024. Through this increase, the company stretched its dividend growth streak to 49 years, which makes PNR one of the best dividend stocks on our list. The stock’s dividend yield on January 4 came in at 1.01%.
The number of hedge funds tracked by Insider Monkey owning stakes in Pentair plc (NYSE:PNR) grew to 47 in Q3 2024, from 40 in the preceding quarter. These stakes have a total value of more than $1.7 billion.
Overall, PNR ranks 13th on our list of best dividend stocks to buy and hold. While we acknowledge the potential for PNR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PNR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.