Stocks that can deliver steady dividend growth have proven to be some of the best market-beating investments you'll find. But with the market still very close to all-time highs, largely on big gains (and big jumps in valuations) of dividend stocks, it may seem impossible to find a dividend growth stock worth buying today.
However, our contributors have three they think are worth buying right now: Caretrust REIT Inc (NASDAQ:CTRE), Brookfield Renewable Partners LP (NYSE:BEP), and Enviva Partners LP (NYSE:EVA). These are three very different businesses, but they all possess the ability to grow their payouts for the foreseeable future. And that's likely to help you beat the market.
Keep reading to learn what sets these three apart, and why you can buy them today.
A small company with a massive opportunity
Jason Hall (Caretrust REIT): Since early 2016, Caretrust has rewarded investors in a big way, with its shares up 73% -- and that's before factoring in a dividend that yields more than 4% at current stock prices. Yet even after this run-up, Caretrust is still a reasonable value, trading for 16.5 times last year's funds from operations per share (a better measure for REITs than price to earnings).
And the future could be even better. Caretrust, which specializes in rehab and senior housing facilities, is in an ideal position for years of growth. Millions of Americans are reaching retirement age every year, and the number of older Americans is already outpacing the growth of rehab and care facilities to support them. Furthermore, we are living longer and more active lives than ever, and this is a huge growth market for a small company like Caretrust, which owns fewer than 175 facilities at last count. This is especially true since the vast majority of American seniors will need long-term care at some point in their lives.
Factor in its relationships with multiple leading skilled nursing and rehab providers -- the companies that lease and operate Caretrust properties -- and Caretrust is an ideal long-term dividend growth stock to buy now and hold, potentially for decades to come.
Make green by going green
Brian Feroldi (Brookfield Renewable Partners): When most investors hear "green" energy, they naturally think of solar and wind power. However, humans have actually been producing huge amounts of clean power for decades thanks to the build-out of hydroelectric dams. That makes this a forgotten but viable power source that will help us transition away from dirty power.
How can investors profit from the growing use of hydroelectric dams? One smart way is to buy shares of Brookfield Renewable Partners. This company currently operates more than 215 hydroelectric facilities in the Americas. What's great about hydropower is that it doesn't require the sun to shine or the wind to blow in order to generate electricity. That allows it to crank out predictable amounts of weatherproof power.
However, Brookfield also recognizes that the long-term potential for solar and wind is huge, and it has decided to invest in those assets as well. The company has made a lot of headwind with wind power in particular as it already operates 35 facilities. In total, its wind power assets crank out enough electricity to power more than 300,000 homes. What's more, the company also recently made a pair of big investments in the solar markets, too.
Currently, Brookfield has a number of hydro, solar, and wind project under construction that provide the company with great near- and long-term profit growth visibility. In total, Brookfield believes these projects should allow the company to raise its dividend by 5% to 9% annually over the long term. That's an attractive growth rate for a company that currently sports a dividend yield of 5.9%.
Wood pellets never looked so good
Brian Stoffel (Enviva Partners): Energy companies in Northern Europe have a mandate to cut down on their carbon emissions. While many see solar, wind, and hydroelectric modes of power generation as the long-term solution, the technology and infrastructure don't necessarily exist to make that a present-day reality. In their stead, many of these power companies are turning to a source familiar to Northeasterners: wood pellets.
Enviva Partners, L.P. is a limited partnership (read: the dividend is a big deal) that focuses on meeting this demand. The company owns production plants and two deepwater ports in the southeastern United States. It also expects to pay out "at least" $2.36 in dividends for the fiscal year, good for a yield of 8.5%. The company has only been public since 2015, but -- if that target is met -- the dividend will have grown by 42% over that time frame alone.
Prudent investors should be rightfully wary of the fact that wood pellets are just a "bridge" input to help these companies transition from coal to more sustainable forms of energy. But Enviva's long-term off-take contracts with power companies add a level of reliability in revenue. As of the company's last earnings release, the weighted-average contract was almost a decade long.
Given this, the fact that there are similar trends toward "gap" inputs starting to surface in Asian countries as well, and the company's investments in infrastructure that allow it to squeeze out more profit, Enviva seems like an excellent dividend growth stock to own over the medium term.
Brian Feroldi has no position in any stocks mentioned. Brian Stoffel has no position in any stocks mentioned. Jason Hall owns shares of CareTrust REIT. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.