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3 Growth Dividend Stocks for September

By Travis Hoium, Rich Smith, and Dan Caplinger - Sep 29, 2017 at 8:00PM

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Not all dividends are built to last, but these three companies have what it takes to not only pay dividends, but grow them for a very long time.

Dividends that grow long term can be a source of great cash flow and overall returns for investors who can find stocks that are built to last. But finding companies with durable cash flows and the ability to pay a big dividend is easier said than done. We asked three of our investors for their top growth dividend stocks to buy this month and Mercadolibre Inc ( MELI -7.09% ), Cintas Corporation ( CTAS -1.08% ), and Brookfield Renewable Partners ( BEP -1.65% ) were at the top of the list. 

Rolls of dollars in a stack.

Image source: Getty Images.

A Latin American "growth dividend" stock -- with the emphasis on "growth"

Rich Smith: (MercadoLibre): If dividends are great -- and they are -- then more dividends must be even better. That's why, when you're looking to buy a dividend stock, you need to keep one eye on the future, and focus not just on what dividend a company is paying today, but how much bigger that dividend might grow tomorrow. And I don't know of many stocks that have the potential to grow dividends bigger, or faster, than MercadoLibre, the Argentinean e-commerce giant.

Currently, MercadoLibre's dividend isn't much to look at. It yields just 0.2%. But consider the possibilities.

Right now, the payout ratio of MercadoLibre's dividend is a mere 18.4%, meaning that for every $5 MercadoLibre earns, it pays out less than $1 in dividends. (The next payout comes due on Sept. 30, by the way). That's an amount MercadoLibre can easily pay, and lends some assurance that, whatever else might happen to the stock, the company is unlikely to cease paying dividends anytime soon. In fact, the one time MercadoLibre reduced its dividend, in 2015, it quickly made up the difference the following year, such that the average dividend paid out from 2014 through 2016 actually grew slightly.

I see every reason to believe MercadoLibre's dividends will keep on growing in future years. Why? For one thing, the low payout ratio leaves ample room for MercadoLibre to increase its payout should it so desire. For another, the company is growing so fast -- sales are up 71%, in local currency, over the first half of last year -- that growth in earnings and dividends are almost certain to follow.

This stock will work harder for you

Dan Caplinger (Cintas): There are many businesses that rely on strength in the job market for maximum success. Many workers have to wear uniforms for their jobs, and Cintas has focused much of its business on providing work uniforms for sale or rent to employees of its corporate clients. A strong U.S. economy has helped bolster Cintas' results lately, including a 27% jump in revenue that lifted net income by nearly a fifth in its most recent financial report. Those gains were led by uniform rentals and facility services, with the less economically sensitive first aid and safety segment lagging behind, but still producing double-digit percentage growth. Cintas also saw better results in the coming fiscal year, increasing projections despite hurricane-related losses.

From a dividend perspective, Cintas isn't a typical favorite stock among income investors. The company's yield is just 1%, and it makes payments annually rather than quarterly. Yet Cintas has boosted its dividend every year for 34 straight years, including a whopping 27% rise in 2016. With a new announcement likely to come in October, investors are optimistic that Cintas will continue to be a dividend growth leader and bring its yield more in line with the market average among dividend stocks. 

An energy dividend that's poised to grow

Travis Hoium (Brookfield Renewable Partners): There may be dividends that will grow faster than Brookfield Renewable Partners, but there are few dividend stocks with payouts as stable. The company is one of the biggest yieldcos in North America, owning hydroelectric power plants and other renewable energy assets. The cash generated from these assets are then used to acquire new growth projects and pay out a dividend. Long term, management aims to generate total returns of 12% to 15% and dividend growth of 5% to 9% annually.

The difference between Brookfield Renewable Partners and other yieldcos is that it aims to grow organically. Most yieldcos want to issue shares and debt to get bigger and bigger, so the strategy is a departure from most in the industry. 

Another advantage Brookfield Renewable Partners has is that it's able to buy a number of different renewable energy assets. Hydro plants are an underappreciated asset in renewable energy, and there are plenty of opportunities to buy wind and solar plants with attractive returns around the world. Brookfield Renewable Partners' current yield of 5.7% makes it a high-yield stock, but the dividend growth of 5% to 9% each year makes this a dividend to own for the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Cintas Corporation Stock Quote
Cintas Corporation
$417.62 (-1.08%) $-4.57
Mercadolibre, Inc. Stock Quote
Mercadolibre, Inc.
$1,104.20 (-7.09%) $-84.21
Brookfield Renewable Partners L.P. Stock Quote
Brookfield Renewable Partners L.P.
$35.70 (-1.65%) $0.60

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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