Each investor is unique, but the big goal for most is financial security. You can build your wealth toward that goal along many paths, but one of the keys to a safe retirement is income. And that means dividends, which can be compounded via dividend reinvestment prior to ending your work years and used to fund daily expenses after. On the dividend front, Realty Income (O 0.52%), Chevron (CVX 0.44%), and Hormel (HRL 1.31%) are three companies you should be looking at right now.
Slow and steady
Real estate investment trust (REIT) Realty Income owns a massive portfolio of net lease properties. That means that its tenants are responsible for most of the costs of the assets they occupy. Around 85% of its rent comes from single-tenant retail properties, with the rest split between industrial and office assets. The REIT offers a roughly 4.1% yield at Thursday's prices, more than triple the 1.3% yield of the S&P 500 Index. And the dividend has been increased for more than 25 consecutive years, making Realty Income a Dividend Aristocrat.
Image source: Getty Images.
Just recently, Realty Income inked a deal to buy peer VEREIT, which will create an even larger net-lease giant. This is a massive change that will help Realty Income maintain its access to low-cost capital. That's a key point of differentiation from smaller rivals. It will also be able to take on larger deals given its increased size. And the best part is that the merger is expected to be 10% accretive to adjusted funds from operations -- a REIT metric similar to earnings -- from day one.
Investors building wealth can simply sit back and watch as Realty Income continues to grow its already sizable business, reinvesting the growing stream of dividends the company throws off along the way. Meanwhile, retired investors can use the 4.1% yield to help fund their retirement. Either way, investors are likely to end up big winners over the long term.
Oil isn't going away overnight
The second company is a bit more controversial, given that Chevron is one of the world's largest producers of oil and natural gas. Those fuels face big carbon issues, but you can't just ditch them without the infrastructure to replace them. And since that infrastructure doesn't exist yet, Chevron likely has years of profits ahead in the energy sector. The yield today is 5.2%, backed by a dividend that has been increased annually for 33 consecutive years.
One of the key reasons to like Chevron is that it has one of the strongest balance sheets in the energy space, with a debt-to-equity ratio at roughly 0.34 times. This is higher than it was a couple of years ago, thanks to the energy downturn in 2020. However, the company's strong finances allowed it to use that downturn to opportunistically buy another energy company so it could come out the other side in a stronger position. That's exactly what you want to see in an industry where scale is likely to become even more important over time.
But here's the real linchpin in this story: Chevron is large enough and financially strong enough that, when the time comes, it can opportunistically buy its way into the clean energy sector. Waiting until the timing is better for itself and the broader industry isn't a bad plan, given the exuberance in the renewable power space today, with investors getting the benefit of big dividend checks while Chevron bides its time. Reinvest those or live off them: Either way, you win.
Growing some things
The one drawback with Realty Income and Chevron on the dividend front is that their payments have grown at a modest clip -- around the mid-single-digits in both cases over the past decade. That's more than enough to keep up with, and even exceed, the historical rate of inflation.
But adding a company that has a history of higher dividend growth can really enhance your portfolio. Hormel, with over 50 consecutive years of dividend hikes behind it (it's a Dividend King), has increased its payout at a 15% clip over the past decade. That more than makes up for its roughly 2% yield today.
CVX dividend per share (quarterly) data by YCharts.
What's interesting about this food company is that it largely flies under the radar despite owning some very important brands, including SPAM, Skippy, and soon Planters. In fact, it is probably better to think of Hormel as a brand manager than a food maker, with leading names across the entire grocery store. It also has growing convenience-store, foreign, and food distribution operations, giving it a material reach in the global food industry. And with a debt-to-equity ratio of just 0.16 times, it has a rock-solid balance sheet to lean on for future growth efforts.
Growth is the really big story here, and it adds a nice complement to more income-focused options like Realty Income and Chevron. Indeed, adding a name like Hormel to a diversified portfolio could boost both capital appreciation prospects and dividend growth prospects, even if you decide not to reinvest the distributions.
Time for a deep dive
Whether you are looking to maximize income or grow your portfolio's value, this trio of dividend payers can help. Realty Income and Chevron offer a balance of dividend growth and current income, while Hormel is all about growth. If you take the time to dig in here, you'll likely find that one or more of these stocks belongs in your portfolio.
