Whether you're looking for dependable income, growth, or a little bit of both, dividend growth stocks can make for the best investments. After all, it takes a special company to have the financial strength and the growth prospects to pay out a steady dividend and then increase that payout year after year.
When it comes to the best of the best, it has to be more than just a little bump in the payout. The best dividend growth stocks are able to raise the payout at much higher rates year after year, while still keeping enough cash on hand to reinvest in back in the business. It's these rare companies that can deliver market-crushing returns for investors providing strong income growth and capital appreciation, too.
Two of the best are healthcare property owner CareTrust REIT Inc. (CTRE -0.45%) and global infrastructure leader Brookfield Infrastructure Partners L.P. (BIP -0.88%). With payout yields of 4.6% and 4%, respectively, they're already solid dividend stocks. Keep reading to learn why they're both set for big dividend growth to come.
Traits that make these solid dividend stocks
While CareTrust and Brookfield are pretty different businesses, they do share several traits that make them ideal dividend investments. To start, both own hard assets that generate steady cash flows, often under long-term contracts or as a regulated monopoly providing a key service to an area.
CareTrust is a real estate investment trust, or REIT. The company owns 185 healthcare-related properties in 23 states, which it leases to healthcare providers that operate and maintain the properties. Its agreements typically run for more than a decade in length, while also providing for regular increases to account for higher property taxes, interest rates, any other items that could cost CareTrust more each year.
A master limited partnership, Brookfield Infrastructure owns -- as the name suggests -- infrastructure assets, specifically in the transportation, telecommunications, water, power, and energy sector. In some cases, these assets are under long-term contracts with conditions allowing for increases related to inflation, and in other cases, they are regulated monopolies, providing important utility services to an area, such as water, energy, or telecommunications. These kinds of assets not only last a long time and produce steady cash flows, but they are largely recession-resistant, since people need water and power no matter the economic environment.
The key to the success for both CareTrust and Brookfield Infrastructure has been very good capital allocation by management, turning acquisitions of new properties and assets into meaningful per-share cash flow growth. And that's what it takes to grow a dividend.
Two megatrends set to drive huge growth
Over the past five years, Brookfield Infrastructure has increased its dividend 51%, and grown it an incredible 146% since instituting a regular dividend in 2009. CareTrust's dividend hasn't increased as much, but the company is also much younger. It paid its first regular dividend in late 2014 soon after going public, and has increased the payout each year since, increasing it 16% in just over two years.
Looking ahead, they should be able to keep growing the dividend for years to come, on the strength of two major trends that are set to provide ample opportunities for growth.
Brookfield's case is tied to a global trend. Around the world, the middle class is growing. Within less than two decades, the global middle class will increase by more than 1 billion people, and the majority of them will live in urban areas. It's going to require substantial investments in the kinds of assets Brookfield Infrastructure makes a living owning and operating to support those people. According to various sources, infrastructure investments will need to top $3 trillion annually over the next 20 years to support global population growth. With an incredible track record of success, Brookfield Infrastructure is incredibly well positioned to profit from this massive global need.
For CareTrust, the growth of another big population -- older Americans -- is driving a major need. Between 2010 and 2029, America's 65-plus population will more than double to over 80 million. At the same time (and for years to follow), the 80-plus population will also increase, as Americans live longer and more active lives. The catch is that as we age, we require more healthcare and more specialized accessible facilities for housing. Right now, there aren't nearly enough of those facilities to support the future population of older Americans, but CareTrust plans to be one of the companies adding capacity as the elderly population grows.
If you're looking for great long-term winners, these two should fit the bill
CareTrust and Brookfield Infrastructure are solid dividend stocks any income investor should be happy to own, with solid businesses that keep the cash flowing in and the payout secure.
But that's just the start. The real potential for these two is to keep growing their payouts. Over the next couple of decades, two huge trends will provide ample opportunity for CareTrust and Brookfield Infrastructure to invest in growth, and that growth should result in more of the kind of dividend growth they have a history of delivering.
Fast-forward a decade into the future, I think it's likely that both will be paying a dividend that's double today's.