Dividend stocks have historically produced market-beating returns. However, it's important to point out that the biggest factor driving outperformance isn't a stock's dividend yield, but whether the company routinely increased its payout. Because of that, it's often better to find a lower-yielding dividend stock with ample room to grow than one with a higher payout, since the latter are often at greater risk of a dividend reduction.
However, sometimes investors can have the best of both worlds with an above-average payout that has lots of growth ahead. Three stocks meeting both criteria are Brookfield Infrastructure (BIP 0.88%)(BIP 0.88%), Clearway Energy (CWEN 3.50%)(CWEN.A), and Crown Castle International (CCI 0.63%). Because of that, I'd have no problem buying shares of any one of them right now.
Plenty of fuel to keep growing
Brookfield Infrastructure recently increased its payout by 5%, boosting the yield to an enticing 3.8%, more than double the S&P 500's current 1.5% yield. That marked the company's 12th consecutive annual increase. The infrastructure operator gave its investors another raise, despite battling some pandemic-related headwinds last year, thanks to the overall stability of its business and its top-tier financial profile.
Brookfield believes it can continue growing its dividend at a 5% to 9% annual rate in the coming years. Fueling that view is the embedded growth of its current portfolio of infrastructure businesses. A combination of inflation escalators in its existing contracts, higher volumes as the global economy expands, and a large backlog of expansion projects should power 6% to 9% annual earnings growth.
Meanwhile, Brookfield believes it can boost its bottom line by an incremental 1% to 5% per year through its capital recycling program of selling mature assets and redeploying the proceeds into new investments. The company has a lot of liquidity to pursue new deals and an extensive pipeline of opportunities it's working hard to convert. As a result, it should have plenty of fuel to continue growing its dividend.
Another meaningful boost coming in 2021
Clearway Energy delivered monster dividend growth last year. The renewable energy producer increased its payout three times and by 59% overall, powered by new investments and the emergence of a key customer from bankruptcy, freeing up the restricted cash tied to those contracts. That supercharged growth helped propel Clearway Energy's dividend yield to 4%.
Clearway has recharged its dividend growth engine in recent months by securing several new investment opportunities. Because of that, the company believes it can deliver a dividend boost this year toward the high end of its 5% to 8% annual growth target. Meanwhile, several of those investments won't start generating cash flow until after this year, so they'll supply some of the power needed to achieve its dividend growth target in 2022 and beyond.
A decade of dividend growth head
Crown Castle recently boosted its dividend by 11%, pushing the yield up to 3.2%. The communications infrastructure-focused REIT expects that upward trend to continue, anticipating dividend growth of 7% to 8% per year.
One of the major drivers of Crown Castle's outlook is the nationwide buildout of 5G networks. The company is helping lead this charge by leveraging its existing cell tower network and building the small cells and fiber-optic cable network needed to support this high-speed communications network. It's increasingly becoming the partner of choice in the U.S. to build out the infrastructure to support this next-generation platform. It sees a decade-long investment cycle, suggesting it has lots of dividend growth still ahead.
Great dividend stocks for the long haul
Brookfield Infrastructure, Clearway Energy, and Crown Castle all pay attractive-yielding dividends. However, what takes this trio to the next level is their growth prospects.
All three expect to increase their payouts at a mid- to high-single-digit annual rate for the next several years. That combination of an above-average yield now with ample upside potential is why I'd have no problem buying any one of them right now.