The Smartest Dividend Aristocrats to Buy With $500 Right Now

Dividend Aristocrats are almost always smart investments. These S&P 500 members with 25 or more years of increasing their dividends have historically outperformed that broader market index with less volatility. Since inception, Dividend Aristocrats have delivered a 12.3% annualized total return compared to 10.6% for the S&P 500, with annual volatility of 13.7% against 14.6% for the S&P 500. 

There are currently 65 S&P 500 Dividend Aristocrat constituents, with members across different sectors. Almost any one of them would seemingly make an excellent long-term investment. However, if you only have $500 to invest, you might consider spreading it across Realty Income (O 0.39%) and NextEra Energy (NEE 0.68%). I'm routinely investing a couple of hundred dollars across both stocks every few months. Here's why I think they're smart investments right now.

Taking consistent dividend growth to another level

Realty Income has a remarkable track record. The real estate investment trust (REIT) recently declared its 100th consecutive quarterly dividend increase and 117th payout raise since its public market listing in 1994. That gives it 28 years of increasing its dividend. The REIT has grown its payout at a 4.4% compound annual rate. 

Realty Income's ability to grow its dividend has added up over the years. For example, a roughly $350 investment a decade ago would have purchased 10 shares of Realty Income. That investment would have produced about $17.50 of dividend income over the first year. Today, those 10 shares would pay nearly $30 in annual dividends, thanks to the steady payment growth. Meanwhile, the cumulative total in dividend payments over the last decade is almost $280. That's roughly 80% of the original investment paid back in dividends. On top of that income, the initial investment would have appreciated to nearly $700. 

The Dividend Aristocrat shouldn't have trouble growing its dividend -- which it pays monthly -- in the future. Realty Income has a very stable real estate portfolio that generates steadily rising rental income backed by triple net leases (NNN) that typically feature annual rate escalation clauses. Meanwhile, it has a top-tier financial profile, including one of the highest credit ratings in the REIT sector, allowing it to continue buying income-producing properties. Realty Income has a vast opportunity set, estimating a $12 trillion global net lease real estate market. Those drivers should enable the company to continue steadily increasing its payout.

Powerful growth ahead

NextEra Energy has also delivered 28 straight years of dividend increases. The utility has grown its payout at an impressive clip over the years. Since 2006, the dividend has expanded at a 9.8% compound annual rate. That has helped power total returns approaching 1,000% over those 15 years, almost triple those of the S&P 500.

NextEra Energy expects to continue growing its dividend at an outsized pace. It's investing billions of dollars in expanding its Florida utility and renewable energy platform. It sees those investments powering around 10% adjusted earnings per share and operating cash flow growth through 2025. That should support about 10% annual dividend growth through 2024. 

The company has ample financial flexibility to support those investments. It ended last year with a 60% dividend payout ratio -- below the 65% average of its peer group -- allowing it to retain more earnings for new investments. It also has A-rated credit, giving it lots of financial flexibility.

Finally, it controls NextEra Energy Partners (NEP 1.62%), an entity it formed to acquire and operate cash-flowing clean energy infrastructure. That relationship enables NextEra to recycle capital by selling infrastructure to the partnership and reinvesting the proceeds into new developments. Those features give it the financial flexibility to invest in expanding its operations while also growing its dividend. 

Wise choices

Realty Income and NextEra Energy have gone above and beyond many of their fellow Dividend Aristocrats over the years. Realty Income has increased its monthly dividend every quarter for a quarter-century, while NextEra Energy has grown its payout at an accelerated rate. It seems likely that they'll continue delivering similar results in the future. That makes them look like smart buys for those looking for a lower-risk way to collect a growing passive income stream right now.