Companies that routinely increase their dividends have historically outperformed their stingier peers, so investors should consider adding some dividend-growth stocks to their portfolios. The cream of that crop is the Dividend Aristocrats, companies that have delivered annual dividend growth for at least 25 straight years.
Two of my favorite Dividend Aristocrats are Realty Income (O 0.93%) and NextEra Energy (NEE +0.01%). I recently put another $500 into these two stocks; here's why I think they stand out as wise investments.
NYSE: O
Key Data Points
The name says it all
Realty Income has an amazing track record of dividend growth. The real estate investment trust (REIT) has increased its monthly dividend payment 115 times since its public listing in 1994, with the last 98 raises coming in consecutive quarters. The REIT has boosted its dividend for 27 straight years, growing it at a 4.4% compound annual rate. That's helped it produce a 15.3% compound average annual total return since its public listing.
That steadily growing dividend has enriched long-term investors. For example, someone who invested $100 in Realty Income in 1994 would have seen that grow to more than $4,000 today, adding up the cumulative dividend payments and stock-price appreciation. Over the last decade alone, investors would have received nearly 80% of their initial investment back in dividends, along with an almost-doubling of the stock's price.
Realty Income should be able to continue growing shareholder value in the future. The REIT focuses on acquiring durable real estate backed by long-term leases with high-quality tenants, in industries resistant to disruption from e-commerce and economic downturns. It also has a reasonable dividend payout ratio for a REIT, and one of the strongest balance sheets in the sector. That gives it the financial flexibility to continue acquiring income-producing real estate, so it can keep increasing its attractive dividend, which currently yields around 4.5%.
NYSE: NEE
Key Data Points
A powerful growth driver
NextEra Energy has also done an exceptional job growing its dividend and shareholder value over the years. The utility has expanded its adjusted earnings per share at an 8.4% compound annual rate since 2006. Meanwhile, it has increased its dividend at a 9.8% compound annual rate during that time frame. Even with that higher dividend growth rate, NextEra has one of the lowest dividend payout ratios in the utility sector. Furthermore, despite a lower payout ratio, NextEra still offers an attractive dividend yield of 2.2%, comfortably above the S&P 500 's 1.4% average these days.
That steady earnings and dividend growth has created a lot of value for investors over the years. The company has produced a total return of more than 800% over the last 15 years. That would have grown a $100 investment in 2007 into more than $800 today.
NextEra Energy expects to continue growing its earnings and dividend in the coming years. It sees adjusted earnings per share rising at or near the top end of its 6% to 8% target range through 2025. Between that and its conservative dividend payout ratio, the utility expects to grow its dividend by around 10% annually through at least 2024. Powering the company's growth is its continued investment in building out one of the largest renewable energy businesses in the world.
Elite dividend-growth stocks
Realty Income and NextEra Energy have created tremendous wealth for their shareholders over the years by steadily growing their dividends, allowing a small investment to go a long way. That makes them smart stocks to buy even if you don't have much money to invest right now.
