"The thing is, if you're just [ogling] fat current dividend yields you are missing the more profitable boat. When it comes to dividend investing, the far smarter play is to zero in on companies that consistently increase their dividend payouts."
Too many income-seeking investors get tripped up by chasing after the highest yielding stocks instead of considering a company's ability to grow its payout. As a result, they miss out on the potentially greater reward from the higher total returns that dividend growth stocks often generate. The numbers bear this out; since 1972, dividend growers have delivered a 9.89% total annual return while steady payers have produced 9.09% total annual returns, according to a study by Ned Davis Research. While that sub-1% yearly difference might not seem like much, it adds up over time.
That's why investors should focus their attention on companies that can grow their dividends each year. While there are several out there, three fast growers you won't want to miss are Noble Midstream (NYSE:NBLX), NextEra Energy Partners (NYSE:NEP), and EQT Midstream Partners (NYSE:EQM).
Bursting out on the scene
Noble Midstream Partners has been red hot since going public in late 2016, delivering a total return approaching 90% over that timeframe, including achieving the best performance among master limited partnerships (MLPs) last year. Fueling that dramatic rise was the company's ability to pounce on three transactions to expand its midstream footprint. Overall, the company spent $649 million on acquisitions last year, which, when combined with organic expansions, helped drive earnings up 76%. That gave the company the cash flow to raise its distribution by 24%, pushing the yield up to 4.1%.
This pipeline company is just getting revved up. Fueled by organic expansion projects across its platform, Noble Midstream Partners expects to grow its already high-yielding payout at a 20% annual rate through 2022. Meanwhile, the company could enhance that growth profile by completing additional acquisitions. In fact, it already has a large supply of opportunities to buy midstream assets from its oil-producing parent, which plans to complete at least one drop-down transaction each year to supplement its MLP's organic expansion program. With all this growth coming down the pipeline, Noble Midstream Partners could have the fuel to outperform the market for years to come.
The wind's at its back
NextEra Energy Partners, which makes the bulk of its money generating renewable power, grew earnings by 16% last year. That enabled the company to increase its dividend 15%, which pushed the yield to 4.3%. The company expects to continue expanding the payout at a rapid pace, with its target to increase it 12% to 15% per year through 2022.
NextEra Energy Partners sees three ways to generate that fast-paced growth. First, it can acquire renewable power assets from parent company NextEra Energy (NYSE:NEE), which is the world leader in generating electricity from the wind and sun. In fact, acquisitions from NextEra Energy's existing energy resources portfolio alone could provide the power needed to achieve the dividend growth plan. However, the company expects to supplement dropdowns with organic expansion opportunities as well as third-party acquisitions. No matter which path it takes, NextEra Energy Partners' believes that its dividend growth strategy could power total returns of 16% to 19% per year for investors.
A big-time yield with even bigger growth potential
EQT Midstream Partners might just be the best of both worlds for yield-seekers. Thanks to a 21% distribution increase last year and a head-scratching 25% decline in value this year, the pipeline company currently yields an eye-catching 6.8%. That yield appears poised to head higher, given that EQT Midstream expects to increase it at a 15% to 20% annual rate for the next several years.
Several factors fuel that growth forecast. First, EQT Midstream expects to acquire the midstream assets currently owned by its gas-producing parent, EQT Corp. (NYSE:EQT), later this year. Meanwhile, in a related move, EQT expects to merge another midstream company it controls, Rice Midstream Partners (NYSE:RMP), into EQT Midstream. These two moves will put all the cash-flowing midstream assets under one roof. In addition to those transactions, EQT Midstream has a backlog of $4.8 billion in expansion projects that it expects to complete over the next five years that should steadily grow cash flow to support the dividend growth forecast.
While this trio of stocks might not have eye-popping yields right now, investors have the potential to earn more money over the long term as those payouts grow. In fact, given their fast-paced growth projections, this trio has the potential to fuel top-tier total annual returns. That's upside potential investors won't want to miss.