Dividend investing, often considered a low-risk endeavor, still comes with its own set of risk-versus-reward trade offs. For example, dividend growth is something investors tend to gravitate toward, but it often leads to expensive stock valuations among the companies with the best dividend growth records. That can materially increase the valuation risk of investing in such stocks if you don't go in understanding the trade-offs you're making. On that score, Albemarle (NYSE:ALB), NextEra Energy (NYSE:NEE), and A. O. Smith (NYSE:AOS) are all interesting high-risk, high-reward dividend stocks to consider today.

1. Electrification of cars

Albemarle isn't exactly a household name. It produces three main products: catalysts used in energy production (27% of revenue), fire-retardant bromine (29%), and lithium (37%). Lithium is the stuff that gets used in car batteries. The first two are pretty sleepy industries, with annual expected growth in the low-single digits over the next five years. Lithium is expected to be a huge growth opportunity, with industry growth pegged at as much as 20% per year over that same time span. The big catalyst there will be electrification of the transportation sector. 

Fingers flipping a die that says short and long with dice spelling term next to it.

Image source: Getty Images.

As one of the world's largest lithium producers, Albemarle is set to grow its business along with the demand growth it is projecting. For dividend investors that could mean a continuation of rapid distribution growth. The company has increased its dividend for 26 consecutive years, with an annual growth rate of 11% over the past decade. Growth has been a little slower lately, which isn't shocking given the coronavirus headwinds. However, if the company's projections for lithium are right, it should continue to reward investors with hefty dividend increases. 

That brings up the big risk: Investors are well aware of the opportunity here, and have pushed the stock price up materially in recent years. The dividend yield, at roughly 1.1%, is at the low end of its historical range in what can be a pretty volatile stock. That said, if you believe in the long-term growth of the electric vehicle industry, the dividend growth potential here could still be quite impressive. 

2. Riding the renewable wave

Like Albemarle, U.S. utility NextEra Energy is also a Dividend Aristocrat, with 26 years of annual dividend increases under its belt. What's so interesting here is that the average annual dividend increase over the past decade was roughly 10%, which is huge for a utility stock. NextEra is pretty confident it can keep that pace up, too, projecting similar dividend growth over at least the next two years. 

The key story is what's behind that growth. The core of the company is its Florida utility operations, but that's a slow and boring business. The real growth is coming from NextEra's investments in renewable energy, which have made it one of the largest providers of solar and wind power in the world. It currently has a backlog of projects that could more than double its renewable power capacity, and the story is pretty strong so far. 

ALB Dividend Yield Chart

ALB Dividend Yield data by YCharts

Like Albemarle, however, investors are well aware of what's going on at NextEra. The stock's yield is a measly 1.9%, which is near historical lows for the utility. Dividend growth investors might find the name attractive, but those with a value bias definitely won't. If you can get past the premium price investors have afforded NextEra Energy, and expect renewable power to remain a huge growth opportunity, this utility could be worth the valuation risk.

3. The hot water specialist 

The final name here is A. O. Smith, with the super exciting focus on... hot water heaters. If that sounds underwhelming, you probably live in a developed country, where hot water is pretty much a given. In such markets A. O. Smith's business is slow-growing and driven largely by the replacement of older units. Construction is a key demand source, but much less material. 

That equation is flipped in developing markets, where hot water is an affordable luxury that every single person wants as soon as they can get it. The big market over the past decade or so has been China, but A. O. Smith is increasingly working to expand in fellow population giant India.

The key to the whole story is that people in these nations are moving up the socioeconomic ladder. As long as that continues to happen, selling hot water heaters will remain a growth business. However, if either of these economies hits a snag internally (a recession) or externally (international trade relations), earnings could fall off pretty quickly. That's exactly what happened in China in 2019 when its economy started to slow down, leading to a notable drop in earnings for A. O. Smith. 

ALB Dividend Per Share (Quarterly) Chart

ALB Dividend Per Share (Quarterly) data by YCharts

That said, investors are back to expecting good things from the company, driving its yield down to 1.8%. Like the other two names above, that's near the low end of A. O. Smith's historical yield range. It's worth pointing out, though, that dividend growth investors have been well rewarded over time. The company has increased its dividend for 26 consecutive years, with an insane 21% annualized growth rate over the past decade. If you believe that China and India will continue the economic advances they have been making, A. O. Smith is a unique way to play it and get paid along the way.

Valuation matters

Albemarle, NextEra Energy, and A. O. Smith are all expensive stocks to own, with yields near all-time lows. However, they have historically rewarded investors with impressive dividend growth and, more important, there's good reason to believe the future remains bright for all of them. The risk here is that you overpay -- but if dividend growth is the goal, that risk may be worth taking on. Adding them to your watch list could be worth your while, even if it means you simply keep an eye on them hoping for a price pullback. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.