Investing for income doesn't have to be complicated. Successful income investing can be as simple as picking businesses that are easy to understand with long-term growth trends on their side.
Let's take a look at how NextEra Energy (NEE 1.36%) and Air Products & Chemicals (APD -0.28%) fit these requirements and could set investors up with a lifetime of growing dividends.
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1. NextEra Energy: The most dominant utility on the planet
With a market capitalization of $151 billion, NextEra Energy is the largest publicly-traded utility in the world. NextEra Energy serves 5.6 million customer accounts and over 11 million customers in Florida through its Florida Power & Light Company (FPL) subsidiary, which is the largest rate-regulated electric utility in the U.S. Via its NextEra Energy Resources subsidiary, NextEra Energy is the largest generator of renewable energy in the world. NextEra Energy Resources delivers wind and solar energy to 37 U.S. states and four Canadian provinces.
While you would think that the largest utility in the world would offer slow growth like most other utilities, NextEra Energy defies that expectation. The company more than tripled its non-GAAP (adjusted) earnings per share (EPS) from $0.76 in 2006 to $2.55 last year, which works out to an 8.4% compound annual growth rate (CAGR). This rapid earnings growth rate helped NextEra Energy to deliver 976% total returns with dividends reinvested over the 15-year period ending on December 31, 2021. This total return rate was quadruple the S&P 500 utility index's total return rate of 242% during that time and nearly triple the S&P 500's 357% total return rate over that period.
NextEra Energy's growth is showing no signs of slowing either. That's because Florida should continue to grow as a result of its great weather, low taxes, and pro-business economy, according to opening remarks from NextEra Energy's CFO Rebecca Kujawa during the company's recent earnings call. In the fourth quarter of 2021, FPL's customer base grew by 82,000 over the year-ago period.
Analysts are forecasting that NextEra Energy will generate 9% annual earnings growth over the next five years. Coupled with the stock's dividend payout ratio of just 60.4% last year, this should translate into high-single-digit annual dividend growth in the years ahead. For a Dividend Aristocrat with 26 consecutive years of dividend increases under its belt, high-single-digit growth potential each year is an attractive proposition. And investors can lock in NextEra Energy's 2% dividend yield at a reasonable price-to-earnings (P/E) ratio of just over 27.
2. Air Products & Chemicals: An industrial gases giant
With a market cap of $57 billion and more than 170,000 customers across over 50 countries, Air Products & Chemicals is among the largest industrial gases companies in the world. Like NextEra Energy, Air Products & Chemicals is a Dividend Aristocrat with 40 consecutive years of dividend increases, with the most recent payout increase being 8%. Given the 10% CAGR in the dividend since 2014, Air Products & Chemicals is certainly keeping its dividend growth streak alive. How has the company been able to pull off this impressive growth?
The growing demand for industrial gases and Air Products & Chemicals' size and scale has helped grow its adjusted EPS 11% annually since 2014. For context, industrial gases are used as inputs in a variety of essential industries like food and beverage, pharmaceutical, electronics, and clean energy. The broad applications of industrial gases explain why it's estimated that the global industrial gases industry will grow by 6% annually from $92 billion in 2020 to $147.1 billion by 2028. Therefore, analysts anticipate that Air Products & Chemicals' adjusted EPS will increase 11% each year through the next five years.
With the dividend payout ratio set to be 61.7% this fiscal year, Air Products & Chemicals has room to keep growing its dividend at a healthy clip.
At the current $259 share price, investors can buy Air Products & Chemicals' market-beating 2.5% dividend yield at a P/E ratio a bit above 25. For a stock with four decades of dividend increases and more room to run, this isn't an unreasonable valuation.
