Selecting stocks with great business models that have room to continue growing in the future is the secret to dividend investing. This is because steadily growing profits should also translate into a stock paying more cash to its shareholders with each passing year.
Here are three attractively valued dividend growth stocks that pay market-topping dividends to shareholders.
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1. NextEra Energy
NextEra Energy (NEE 0.45%) is the biggest publicly traded utility in the world, with a $140.1 billion market capitalization. The clean energy electric utility provides service to more than 5.7 million customer accounts and 12 million residents throughout the state of Florida.
NextEra Energy's Florida Power & Light Company subsidiary grew its customer base by 1.6% in the first quarter of this year. This was more than 91,000 new customers, according to Chief Financial Officer Kirk Crews' opening remarks during the company's most recent earnings call. And as more individuals and families move to the state in the years ahead, NextEra Energy's customer base should keep growing. This is in part why analysts expect that NextEra Energy will deliver 9.1% annual earnings growth over the next five years.
And with the stock's dividend payout ratio set to be 60.3% in 2022, the dividend should be able to also grow around 9% annually over the medium term. Given that NextEra Energy has a market-besting 2.4% dividend yield, this is a good mix of starting yield and growth potential.
NextEra Energy also looks reasonably priced for its superior growth profile. The stock trades at a forward price-to-earnings (P/E) ratio of 25.5, which is only moderately higher than the 20.3 forward P/E ratio for electric utilities.
2. Broadcom
Broadcom's (AVGO -4.31%) $247.9 billion market cap makes it the fourth largest semiconductor stock on the planet. And if its size wasn't enough, the company should also benefit from a promising industry growth forecast.
For instance, the global semiconductor market is expected to compound at a 9.2% annual rate from $483 billion in 2022 to $893.1 billion by 2029. This bright future for the semiconductor industry is based on the increasing consumption of consumer electronics devices across the globe, according to market research firm Fortune Business Insights. And this healthy growth outlook is anticipated to result in 14.7% annual earnings growth over the next five years for Broadcom.
The stock's dividend payout ratio is poised to be 46.2% for its current fiscal year that ends in October. This should enable the dividend to grow around 15% each year for the next five years. This is strong growth considering that Broadcom comes with a starting yield of 2.7% at the current $609 share price.
The cherry on top is that Broadcom's forward P/E ratio of 17.1 is in line with the semiconductor industry average forward P/E ratio of 16.9. This makes Broadcom a great semiconductor stock to buy hand over fist.
3. Verizon Communications
With a $205.5 billion market cap, Verizon Communications (VZ 0.90%) is the biggest telecom stock in the world. With Verizon continuing its rollout of 5G services throughout the rest of the U.S., analysts are forecasting 3.6% annual earnings growth through the next five years.
Verizon's dividend payout ratio is poised to be 47.6% in 2022. This gives the company the needed capital to execute on its growth plans, which is why I think the dividend will almost grow at the same rate as earnings. And with Verizon yielding 5.2%, this is a nice combo of income and slow but steady growth.
The stock can also be purchased at a forward P/E ratio of 9.1, which is well below the 16.5 forward P/E ratio of the communication services sector. This makes Verizon a solid stock to buy and hold for the long haul.
