Dividends are more powerful than many investors realize. They have historically provided a jaw-dropping 42% of a stock's total return, according to data by Morningstar. This added boost has helped dividend-paying stocks generate a total annual return of 9.25% over the last several decades, according to a study by Ned Davis Research. That has outperformed the 7.7% average of companies in the S&P 500 over that time frame.
Data like that makes it easy to love dividends. It's likely why investors who are fond of these payouts often want to add more of them to their portfolio. If that's you, here are a couple of excellent options you should think about buying.
Piping a growing income stream into your portfolio
Pipeline giant ONEOK (OKE -2.67%) offers dividend lovers an attractive payout that currently yields about 5%. Several factors put that income stream on solid ground. For starters, ONEOK generates predictable cash flow since fee-based contracts and other stable sources will provide roughly 85% of its earnings this year. The company complements that steady cash flow with a conservative dividend payout ratio and a strong investment-grade balance sheet. That healthy financial profile gives the company the flexibility to invest in high-return growth projects.
ONEOK currently has $6 billion of expansions underway. Since fee-based contracts back the bulk of its growth projects, the company has good insight into its growth prospects. The pipeline giant currently expects earnings to increase 6% this year and at a more than 20% rate in 2020 as the bulk of its expansions come online. That forecast supports the company's view that it can grow its dividend at a 9% to 11% annual rate through 2021. While ONEOK did recently caution that it could slow its dividend growth rate to retain more cash for self-funding expansion projects, it remains a high-yield, high-growth stock. Because of that, ONEOK could produce market-beating total returns over the next few years, making it a great dividend stock to buy.
Generating fast-paced dividend growth
NextEra Energy (NEE -1.63%) currently yields 2.7%, which is well above the 1.9% average of stocks in the S&P 500. The clean-energy-focused utility's payout is also on a firm foundation. That's because the company generates relatively steady cash flow. Not only does it provide customers in Florida with reliable electricity and natural gas, but it sells renewable energy under long-term contracts to other end users across the country. NextEra further supports its payout with a top-notch balance sheet and a low dividend payout ratio for a utility.
The company has been increasing its dividend payout ratio closer to the peer-group average in recent years. Because of that, NextEra Energy expects to grow its dividend at a 12% to 14% annual rate through at least 2020, even though it only sees earnings increasing by 6% to 8% per year through 2021, powered by the roughly $40 billion of expansion projects it has underway. While the dividend growth rate will likely moderate after next year, NextEra appears well positioned to continue increasing its payout for years to come, powered by its bold bets on renewable energy. That potential for healthy future dividend growth could enable NextEra Energy to maintain its pace of generating market-beating total returns, making it a great stock to buy.
Above-average dividends with appealing upside potential
ONEOK and NextEra Energy offer dividend seekers the rock-solid above-average yields that they love. And as a bonus, both companies expect to increase their dividends at a healthy pace over the next couple of years. The combination of yield and growth could give these energy stocks the power to generate market-beating total returns in the coming years. That upside potential makes these energy stocks compelling options for dividend lovers to consider buying.