The dividend yield on the S&P 500 is currently near a 20-year low of around 1.3%. That's due to a range of factors, including rallying stock prices, lower dividend payments in the past year because of the pandemic, and a preference by some sectors for share buybacks over dividends.
However, while these factors make it harder for income-seeking investors to find an attractive yield, they do exist. Two dividend stocks that currently stand out are Brookfield Renewable (BEP 0.10%) (BEPC -0.26%) and Realty Income (O 0.98%). Both yield over 3%, or more double that of the average company in the S&P 500.
A steadily growing dividend stream
Brookfield Renewable is one of the world's largest renewable energy companies. It's a global leader in hydropower and has growing wind and solar energy platforms. Brookfield sells the power it generates under long-term, fixed-rate power purchase agreements, enabling it to produce a steady stream of cash flow. It uses a portion of these funds to support its 3.2%-yielding dividend.
One thing that stands out about Brookfield compared with other higher-yielding companies is its growth profile. The company believes it could grow its cash flow per share by as much as 20% per year through 2025. That's a potential acceleration from the past decade when Brookfield grew its cash flow per share at a more than 10% compound annual rate. Several factors power that brighter outlook, including higher power prices, an extensive pipeline of renewable energy development projects, and acquisitions.
That forecast should give Brookfield plenty of power to continue growing its dividend. It expects to be able to increase its payout by 5% to 9% per year. That's potentially faster than the more than 6% compound annual growth it has delivered since 2010. That likelihood of generating a steadily growing income stream powered by the energy transition to cleaner sources makes Brookfield stand out as a great option for dividend investors. It should produce income along with compelling total returns.
Living up to its name
Realty Income has been an exceptional dividend stock over the years. The real estate investment trust (REIT) has made 615 consecutive monthly dividend payments throughout its more than 50-year operating history. Meanwhile, it has increased its payout 112 times since its initial public offering in 1994, including in each of the last 96 consecutive quarters.
The REIT has delivered such dependable dividends by owning high-quality commercial real estate backed by a strong financial profile. It concentrates on freestanding properties (primarily retail) triple net leased to credit-worthy tenants in relatively resilient industries. These leases require the tenant to cover maintenance, real estate taxes, and building insurance. That means Realty Income generates very stable rental income to support its 4.2%-yielding dividend.
Realty Income also has one of the strongest balance sheets in the REIT sector. It's one of only a handful of REITs with A-rated credit, and it has a reasonably conservative dividend payout ratio. Those factors give it the financial flexibility to make acquisitions that expand its portfolio and cash flow to continue growing the dividend.
The REIT is on track to buy $4.5 billion of properties this year. On top of that, it's merging with fellow REIT VEREIT (VER) in an all-stock deal that will create a top-five global REIT. That merger should boost its annualized cash flow per share by more than 10%. Because of this growth, Realty Income should continue living up to its name by supplying investors with a steadily rising passive income stream backed by commercial real estate.
Two exceptional options for dividend investors
Brookfield Renewable and Realty Income offer investors attractive yields in the current market. In addition, both companies should be able to continue growing their payouts in the coming years. That makes them ideal investments as they should generate some passive income along with price appreciation.