A little-known secret to making lots of money in the stock market is to invest in dividend-paying stocks. They pack a powerful punch. Over the last 50 years, dividend payers have significantly outperformed non-payers, producing 9.6% average annual total returns compared to the non-payers' 4.8%, according to data from Ned Davis Research and Hartford Funds. Meanwhile, dividend growers and initiators have done even better for their investors, with average annual total returns of 10.7%.
While past successes are no guarantee of future results, dividend stocks should continue to make their investors lots of money in the future. Three dividend growth stocks that stand out for their ability to reward shareholders are Stanley Black & Decker (SWK -1.89%), NextEra Energy Partners (NEP -1.49%), and Brookfield Infrastructure (BIPC -1.07%) (BIP -1.21%). Here's why some Fool.com contributors believe investors won't regret adding them to their portfolios.
Working through the problems
Reuben Gregg Brewer (Stanley Black & Decker): There's no use trying to sugarcoat the troubles that Stanley Black & Decker faces today. The situation is bad. Its full-year adjusted 2022 earnings of $4.62 per share were down dramatically from the $10.48 the company earned the year before. Next year is going to be even worse, with management guidance calling for adjusted earnings of zero to $2.00 per share.
Why would anyone buy this dog? For starters, management is well aware of the headwinds it is facing and is working to get back on track. Those efforts include debt reduction, cost cutting, and rightsizing inventory levels, among other things. The problem is that none are quick fixes, and some (notably the inventory efforts) will cause more pain before they start to deliver benefits. However, all should position the company for a brighter long-term future.
And that's the part that matters. Stanley Black & Decker has an incredible long-term track record -- note that it has paid dividends for over 145 consecutive years. Management has also increased the dividend annually for more than five decades, making it a Dividend King. Sure, this industrial company is down on its luck today, but history suggests that income investors should give it the benefit of the doubt. And long-term investors who buy shares now will get to collect a historically high 3.5% dividend yield while they wait for the business and the stock price to recover.
An incredibly solid and reliable dividend stock
Neha Chamaria (NextEra Energy Partners): If you're looking to invest in a dividend powerhouse, look no further than NextEra Energy Partners.
NextEra Energy Partners acquires and operates clean energy assets. Since they're long-term, contracted assets, they generate stable and predictable cash flows for the company. Predictable cash flows mean NextEra Energy Partners can pay dividends regularly, and by bolstering its cash flows through acquisitions, it can also increase its dividend per share (or its distribution per unit, as it's called for master limited partnerships) year after year.
NextEra raised its dividend (or distribution) per unit by almost 15% last year, driven by 20% year-over-year growth in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). 2022 was a solid year, with the company adding 1.2 gigawatts (GW) of generating capacity to its clean energy portfolio through assets it acquired from its parent company, NextEra Energy.
Here's the best part: 2022 was such a strong year that NextEra Energy Partners is targeting annual distribution per unit growth of 12% to 15% through 2026. Here's what it could mean to you: By 2026, you could earn an annual dividend of as much as $5.70 per unit if you own NextEra Energy Partners shares.
This dividend growth potential, coupled with a 4.5% yield at the current share price, makes NextEra Energy Partners a rock-solid dividend stock that you won't regret buying.
Plenty of power to continue growing the dividend
Matt DiLallo (Brookfield Infrastructure): Brookfield Infrastructure recently announced it was increasing its dividend by another 6%. That boost will make 2023 the global infrastructure giant's 14th consecutive year of dividend growth. That steadily rising payout has helped Brookfield Infrastructure produce powerful total returns over the years.
BIP Total Return Price data by YCharts.
The upward trend in the dividend seems likely to continue. The company recently reported exceptional 2022 results. Brookfield's funds from operations (FFO) were up 20% overall (and 12% on a per-share basis), powered by acquisitions and organic growth drivers.
Brookfield Infrastructure has plenty of power to continue growing. The company secured $2.9 billion worth of new investments last year across five transactions that will contribute to its results this year. Brookfield's recent investments and organic growth drivers should power FFO per share growth in the range of 12% to 15% this year.
The company has already replenished its investment pipeline. It's evaluating several transactions to acquire infrastructure assets from corporations. It's also reviewing several deals to take public companies private. Those future deals will enhance its already solid organic growth profile that has the company on track to grow FFO per share at a 6% to 9% annual rate for the next several years. That easily supports Brookfield's plan to increase its dividend at a 5% to 9% yearly rate.
With more dividend growth ahead, Brookfield Infrastructure should continue making lots of money for its investors. Because of that, investors can buy it without any hesitation right now.
