Many dividend investors fall prey to the practice of stretching for yield. They focus their attention on seeking out stocks that offer the biggest payouts, which can end in disaster if a company can't maintain its outsize dividend.
A far better approach is to look for companies that can consistently increase their payout. That's because dividend growth stocks tend to vastly outperform not only the S&P 500 but also those that maintain the status quo. Three top stocks that have a history of increasing their above-average payouts as well as have plenty of fuel to keep growing them are Enterprise Products Partners (NYSE:EPD), Brookfield Infrastructure Partners (NYSE:BIP), and NextEra Energy (NYSE:NEE). Those are just some of the factors that make them great dividend stocks to buy right now.
On the road to dividend royalty
Enterprise Products Partners has been an elite dividend stock throughout its history. The master limited partnership (MLP) is entering its 22nd straight year of increasing its distribution. That has it closing in on dividend royalty, as it's just three years away from Dividend Aristocrat status. What sets Enterprise apart from most dividend stocks is that it typically raises its payout each quarter; it recently notched its 61st consecutive quarterly increase.
The company's current payout is quite attractive. The 6.8% yield is more than three times that of the average stock in the S&P 500. Furthermore, its distribution is on an excellent foundation since the company covers it with cash flow by a comfortable 1.7 times. Add that to having one of the highest credit ratings among MLPs, and Enterprise has plenty of financial flexibility to continue expanding its operations.
The midstream company currently has $9.1 billion of expansion projects under construction, which should come online through 2023. That highly visible growth makes it quite likely that Enterprise can continue increasing its dividend each quarter for the next several years.
A decade of growth with plenty of fuel to keep going
Brookfield Infrastructure Partners has grown its payout every year since its IPO about a decade ago. Overall, it has increased it at an 11% compound annual rate, which has given it the fuel to vastly outperform the market over that timeframe.
The infrastructure-focused company's current payout yields an above-average 3.8%. It's also on solid ground as Brookfield generates stable cash flow, 60% to 70% of which it pays out to investors. The company uses the funds it retains as well as its top-notch balance sheet to expand its assets as well as acquire new ones.
Brookfield Infrastructure is in the process of closing several acquisitions, which will drive accelerated growth over the next year. As a result, the company is on pace to expand its cash flow by 25%, well above its long-term target range of 6% to 9% annually. The company should have plenty of fuel to keep growing its dividend, which it aims to increase by 5% to 9% each year.
High-powered growth ahead
NextEra Energy has done an excellent job of growing its dividend over the years. Since 2003, the utility has increased it at a 9.1% compound annual rate. At the moment, that payout yields a slightly above average 2.1%. That dividend is on solid ground, since NextEra pays out only about 58% of its cash flow, well below the 70% comfort level of most utilities.
NextEra aims to continue growing its payout at a fast pace in the near term -- by 12% to 14% per year through at least 2020. Meanwhile, it should have plenty of power to keep growing it at a healthy rate after next year, given its current growth prospects. In NextEra's estimation, it can increase its earnings by 6% to 8% per year through 2022 as it continues investing in its utilities as well as on renewable energy projects. At a minimum, the company should be able to continue growing its payout by around that same level, making it an ideal dividend stock for the long term.
Great income growth stocks
Enterprise Products, Brookfield Infrastructure, and NextEra Energy have been exceptional dividend stocks over the years, with each one consistently increasing their payout for more than a decade. Those trends appear poised to continue for at least the next few years, which makes them excellent income stocks to buy right now with the long term in mind.