Dividend-paying stocks have historically outperformed the rest by a wide margin, with the cream of the crop being higher-yielding stocks that consistently increase their dividends. This elite group has outperformed stocks that pay lower dividends and those that pay no dividends by an average of 3% annually each decade between 1972 and 2012, according to a study by Ned Davis Research.
Given that data, it would make sense for investors to uncover as many companies that have the fuel to grow their higher-yielding dividends in the coming years as possible. Three lesser-known names that you won't want to miss are NextEra Energy Partners (NYSE:NEP), Brookfield Property Partners (NASDAQ:BPY), and EQT Midstream Partners (NYSE:EQM).
Generating reliable income growth
NextEra Energy Partners operates wind farms, solar facilities, and natural gas pipelines that produce stable cash flows backed by long-term contracts. That steady income supports the company's ability to pay a generous 4.1%-yielding dividend. What's more, the company's cash flow covered that payout by a comfortable 1.2 times last year.
NextEra Energy Partners currently expects to increase its already high-yielding payout at a brisk pace over the next several years, aiming for 12% to 15% annual growth through 2022. Several factors could power the company's plan, including acquiring clean-energy assets from its parent, NextEra Energy (NYSE:NEE), organically expanding its natural gas pipelines, or making third-party acquisitions. Even the existing dropdown portfolio of NextEra Energy alone could power the company's current dividend growth strategy. That clearly visible growth leads NextEra Energy Partners to believe it can deliver a total annual return of roughly 16% to 19% annually through at least 2022 -- which could translate to market-smashing returns for investors.
Being a landlord without the hassle
Brookfield Property Partners owns a diversified portfolio of real estate assets, including some of the top office and retail locations in the world. The company has secured long-term lease agreements for space in these properties that provide it with very reliable cash flow to support its 5.7%-yielding distribution to investors. Meanwhile, Brookfield Property Partners only pays out about 80% of its cash flow, retaining the rest to help finance growth projects.
Making growth-focused investments to redevelop older properties and develop new ones is one part of Brookfield's strategy to grow cash flow. The company will also benefit from contractually guaranteed rental increases, and it has an active program to sell mature properties and reinvest the proceeds into higher-returning ones. This three-pronged approach should grow cash flow at an 8% to 11% compound annual rate through 2021, which supports the company's belief that it can increase its lucrative distribution to investors by 5% to 8% per year over that time frame. Brookfield estimates that this strategy should generate total returns of 14% to 19% annually through 2021.
A pipeline for steady income growth
EQT Midstream Partners operates natural gas pipelines and related infrastructure in the Marcellus and Utica shale regions, with the bulk of its assets underpinned by long-term contracts with its parent, EQT Corp. (NYSE:EQT). Those agreements provide EQT Midstream with predictable cash flow to support its 6.1%-yielding payout.
Already the largest gas producer in the country, EQT expects to grow production at a fast pace in the coming years -- and will need to invest in building out the infrastructure to support this expansion. As things stand right now, EQT Midstream believes its growing cash flow stream from those expansion projects will support 15% to 20% annual distribution growth for the next several years and allow it to maintain a coverage ratio -- that is, distributable cash flow divided by total amount distributed to unitholders -- of at least 1.1. EQT Midstream could increase its payout at an even quicker pace since EQT recently acquired several midstream assets and a large stake in another pipeline company, which it could combine with EQT Midstream. But even without that added boost, EQT Midstream's stand-alone strategy has the potential to fuel total returns of more than 20% annually.
This trio of companies collects predictable cash flows from long-term contracts, which enables them to pay high-yielding dividends. However, that current income stream is only the beginning. All three expect to increase their payouts at a healthy clip in the coming years thanks to their clearly visible growth prospects. As a result, these income stocks could provide market-beating returns for investors, which is why it makes sense to at least put them on your watch list and learn more about each one.