I'm a big fan of dividend stocks. Not only do they generate passive income, but they have also historically outperformed the S&P 500 with less volatility. That's why I routinely buy dividend payers to help blunt some of the effects of my growth-focused investments.
Three dividend stocks that currently sit at the top of my buy list are Clearway Energy (CWEN -0.67%) (CWEN.A -0.43%), Crown Castle International (CCI 2.53%), and Invitation Homes (INVH 0.18%). Here's why I'd add to my position in any one of these dividend payers right now.
A powerful future
Clearway Energy focuses on operating clean energy infrastructure. The company owns natural gas power plants, renewable energy generating facilities, and district energy assets. It sells the energy it produces to end users like utilities and commercial customers under long-term, fixed-rate contracts. That enables it to generate relatively stable cash flow. Clearway distributes the bulk of that money to investors via a dividend that currently yields around 5%, well above the S&P 500's 1.3% average.
As good as that payout is right now, it should be even better in the future. That's because Clearway expects to grow its dividend at a 5% to 8% annual rate. Powering that plan are the clean energy company's solid financial profile and abundant investment opportunities. It has a strategic partnership with a large-scale renewable energy project developer, providing a steady stream of acquisitions options. In addition, it has the financial flexibility to pursue third-party deals when the right opportunity arises.
With an attractive current yield and highly visible growth prospects, Clearway Energy is a great dividend stock. That one-two punch should enable the energy company to generate compelling total returns in the coming years as the global economy transitions to cleaner power sources.
Connected to a megatrend
Crown Castle is a real estate investment trust (REIT) focused on communications infrastructure. It owns and operates cell towers, small cell sites, and fiber optic cable in the U.S. and leases space on this infrastructure to mobile carriers to support their communications networks. Those contracts provide the REIT with steady cash flow to sustain its 2.6%-yielding dividend.
Crown Castle's infrastructure is crucial to the rollout of 5G networks across the country. The company estimates that it will take a decade to build out the small cells and fiber optic cables needed to support this faster network. Because of that, Crown Castle believes it can continue expanding its infrastructure portfolio, which should drive 7% to 8% annual dividend growth over the coming years.
Combine Crown Castle's above-average current yield with its enticing growth prospects, and the REIT appears poised to generate strong total returns in the coming years as it benefits from the 5G megatrend.
Homing in on the best markets
Invitation Homes is a REIT focused on owning and renting single-family homes. That lifestyle is becoming increasingly popular among millennials who prefer the flexibility and freedom of renting but want more space than apartment living. That has enabled Invitation Homes to capture growing rental rates, allowing it to generate lots of cash to support its 1.7%-yielding dividend.
One reason for that lower yield is that Invitation Homes retains about half its cash flow to expand its rental home portfolio. The company aims to spend $1 billion this year to grow its portfolio, focusing on fast-growing markets along the West Coast and the Sun Belt region.
The REIT's focus on investing in high-growth markets enables it to benefit from strong rental growth rates and above-average home price appreciation. That's helping grow shareholder value by expanding its cash flow, allowing Invitation Homes to steadily increase its dividend. Those factors position the company to produce outsized returns in the coming years as demand for single-family rentals increases, given the tight housing market.
Great dividend growth stocks
Clearway Energy, Crown Castle, and Invitation Homes stand out as ideal dividend stocks. Not only do they offer above-average yields, but they're also benefiting from long-term growth trends, which should enable them to steadily increase their dividends. That growing income stream should enable these dividend stocks to produce strong total returns, which is why I'd buy any one of them right now.