There are a lot of reasons to love dividends. Besides providing a source of income, companies that pay -- or better yet, grow -- dividends do so knowing they have confidence that the business will continue to provide sufficient cash flow in the future.
Three such companies that also have strong business prospects are industrial supplier Fastenal (FAST +2.35%), steelmaker Nucor (NUE +2.10%), and infrastructure play Brookfield Infrastructure Partners (BIP +0.85%). Dividends are never guaranteed, but investors in these three companies get income that has been reliable over the long haul.
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Dividends are a priority
Fastenal has been increasing its total dividend every year for the past 20 years. Along with collecting that income, investors in the industrial products supplier have enjoyed capital appreciation as the business has thrived. While the dividend yield is only about 2%, the reliability of its growth along with the prospects of the business makes Fastenal a must-have for dividend-oriented investors.
In its third-quarter earnings released Oct. 13, the company reported sales growth that has continued throughout the coronavirus pandemic. As a supplier to many manufacturers whose operations have been disrupted over the past nine months, that's a meaningful achievement.
The company saw a surge in sales of safety products early in the pandemic, offsetting the decline in industrial products, as some manufacturers suspended or slowed operations. While the volume of personal protection equipment, hand sanitizer, and other pandemic-related products remains elevated, traditional product sales to manufacturers remain weak, the company said in its earnings release. Those sales should pick back up as the industrial economy eventually gets back to running at full speed.
A Dividend Aristocrat
Steelmaker Nucor is among the elite companies known as Dividend Aristocrats, which have increased base dividends for at least 25 consecutive years. Nucor, in fact, has done so for 47 straight years, and there's every reason to believe it will soon become a Dividend King with a 50-year record.
Nucor Chief Executive Officer Leon Topalian took the position in January of 2020. He didn't mince words when discussing the company's dividend with CNBC in April, saying, "I'm not going to be the first CEO in Nucor's history to stop that. That will continue."
Nucor may be in a cyclical business, but it generates a significant amount of cash flow. With this money, the company is constantly investing back in the business and returning capital to shareholders with an increasing dividend and occasional share repurchases.
NUE Cash from Operations (TTM) data by YCharts
While results have been impacted by the pandemic, signs of strength in the automotive and construction industries look to be providing an uptick in business conditions. Nucor throttled back on some capital expenditures out of caution amid the economic uncertainty, but it said in its second-quarter conference call that it will still spend about $1.7 billion on growth projects in 2020. As growth projects slowly come to fruition over the next several years, investors collect a respectable 3.25% yield at current prices.
Successful capital allocators
The Brookfield name may be familiar to investors as a top global asset manager from the Canadian firm Brookfield Asset Management (BAM +1.39%). Its infrastructure affiliate has more going for it than just a parent company with available capital. Brookfield Infrastructure Partners' investments include global infrastructure networks such as railroads, cell towers, toll roads, and pipelines.
The company has returned an annual average of 15% since it was established in 2008. It also has the goal of increasing its distribution to shareholders by between 5% to 9% annually. The company's record of successfully investing in infrastructure assets speaks for itself. Investors get a strong 4.3% dividend yield while letting proven professionals continue to generate capital appreciation.
Tailwinds ahead
All three of these companies provide dividend seekers with what they should look for. They each pay a good current yield, have a history of growing the payout, and maybe most importantly, the dividend can be relied upon, even through business cycles.
There should be growth ahead for each of them as well. A rebounding economy, strengthening manufacturing base, and needed infrastructure investments in the country bode will for the underlying businesses. Together, these are good reasons to love Fastenal, Nucor, and Brookfield Infrastructure Partners.
