Maximize Dividend Growth and Market Cap With These 3 Stock Picks

Key Points

• As the new cycle, caused by the Federal Reserve rate cuts, comes underway, a few preferences should be top of mind for investors.
• Some of these are dividend income, earnings growth, and potential market capitalization jumps into large-cap status.
• Three stocks offer these attributes and more, backed by solid fundamental tailwinds in their industries.

Now that the market is shifting due to the new path the Federal Reserve (the Fed) has undertaken recently, cutting interest rates and starting a new monetary policy easing cycle, investors need to re-tune their preferences for potential picks in their portfolios moving forward. Growth, income, and market capitalization growth are some of the factors that should be at the top of this new preference list.

With this in mind, the homework has been done regarding hunting for stocks that fit these descriptions so that investors can focus on weighing their options rather than going down rabbit holes. Fitting this list, investors will see names like Knight-Swift Transportation Holdings Inc. NYSE: KNX in the transportation sector, then PotlatchDeltic Co. NASDAQ: PCH as support in the construction industry, and finally, an energy sector play in Brookfield Renewable Partners NYSE: BEP.

All three of these picks share the same factors: market capitalizations below $10 billion to be considered middle caps and not large caps, enough earnings per share (EPS) growth forecasts to turn them into large caps so that investors can enjoy the ride in this new cycle, and the added bonus of enjoying enough dividend income to cushion any inflation effects or volatility that this new easing cycle might bring.

Transportation Leads the Way: Knight-Swift Stock Poised for a Breakout

Two sectors typically act as gauges for the economy: housing and trucking. In this case, Knight-Swift stock offers insight into the trucking industry, and it’s starting to look very optimistic today. When rates come down, and both business and consumer activity spike, trucking and transportation tend to benefit from new demand.

Being a $8.4 billion company gives investors enough room to rise to a closer fraction of peers like J.B. Hunt Transport Services Inc. NASDAQ: JBHT, which trades at a larger $17.6 billion market capitalization. Here’s where the growth might come to get this stock to a bigger market capitalization.

Analysts at Barclays Bank think Knight-Swift stock could be worth up to $62 a share, daring it to rally by as much as 18.8% from where it trades today.

They also call for a new 52-week high to show more bullish momentum ahead. While it may not be an inflation-beating income, the stock offers investors a 1.2% dividend yield today.

But that yield could be improved now that the company expects to see bigger profits in the next 12 months, or at least that’s what Wall Street analysts project today.

Predictions are for Knight-Swift to reach $0.50 earnings per share (EPS) next year, up from the current $0.24, for a 108% growth in earnings to close the loop on potential upside.

Rising New Construction Could Spark a Rally in PotlatchDeltic Stock

Lower interest rates mean lower mortgage yields, which could spark new construction demand as homebuyers come off the sidelines and are ready to look for new homes. Even if that’s not the case, given the high inventory per capita levels of the market today and falling housing starts, rental demand is the next big thing to rise.

Whichever real estate branch takes off on these lower rates, construction needs timber. PotlatchDeltic owns large acres of timberland to provide the industry with what it needs.

Knowing this, investors can start to see how this $3.4 billion company will turn into a large cap in due time, as long as there is enough potential growth ahead.

And growth there is. Wall Street analysts now forecast EPS growth of up to $0.30 for the next 12 months, looking to deliver over 100% profit growth. Leaning on these trends and fundamentals, those at Bank of America felt comfortable placing a valuation of $51 a share on this stock, calling for up to 12% upside from where the stock trades today.

As a real estate investment trust (REIT), PotlatchDeltic offers an attractive dividend yield of 3.95% today, one that could grow as profits double and the stock manages to grow its market capitalization in this new cycle.

Energy Supercycle Could Drive Surge in Renewable Energy Demand

There has to be a reason why Brookfield Renewable Partners stock saw its volume grow from an average of $482,000 shares to $821,000 shares recently.

The doubling in volume signals market interest in this stock. But what could have brought the market into this $6.9 billion market capitalization company?

As business activity rises due to lower interest rates, oil demand may spike, increasing the price per barrel.

This trend makes alternative energy sources more attractive, and that’s where Wall Street forecasts for up to 113% EPS growth in this stock comes into play.

From this potential growth path, those at the Royal Bank of Canada have landed on a $31 price target for Brookfield Renewable stock, calling for a net upside of 17% from where it trades today.

More than this upside, the stock offers investors an attractive 5.3% dividend yield today, speaking to the company’s undervaluation and confidence in future growth and stability.