Many investors have dividend stocks all wrong. They see them solely as a passive income stream. While they produce passive income, that's only a portion of their total return. Many also can deliver healthy stock-price appreciation.
The second factor's biggest driver is growth (earnings and dividend payments). Companies that can consistently grow their dividends and, by necessity, their earnings and free cash flow have delivered higher total returns than companies unable to grow their dividends. Over the last 50 years, dividend growers have generated a 10.7% annualized total return, compared to 7.1% from those without any change in their dividend policy and 4.8% for non-payers, according to data by Ned Davis Research and Hartford Funds.
American Tower (AMT -1.44%) and VICI Properties (VICI -1.96%) are two companies with excellent track records of growing their dividends. With more dividend growth ahead, they're great dividend stocks to buy this March for those seeking high total-return potential.
A compelling combination
American Tower has increased its dividend every year since converting to a real estate investment trust (REIT) in 2012. The data-infrastructure operator has grown its payout at a more than 20% compound annual rate over the last decade. While dividend growth has slowed recently, it was still an impressive 12.5% last year. Meanwhile, American Tower expects to increase its payout by another 10% this year despite facing several growth headwinds.
Many of those near-term headwinds should fade after this year. Meanwhile, the long-term tailwinds driving its growth remain in place. Data usage continues to grow exponentially, driving the need for more data infrastructure. That should enable American Tower to continue adding more tenants to its existing towers and data centers and build additional infrastructure. In addition, the company has a solid and improving balance sheet, which will give it the financial flexibility to continue making accretive acquisitions.
The company's near-term headwinds have weighed on the share price in recent months. Because of that, American Tower's dividend yield is currently up over 3%, the highest level this decade. That combination of value and yield makes American Tower even more attractive when added to its long-term growth prospects. While shares have fallen over the past year, American Tower's growing dividend has enabled it to produce a 12.1% average annual total return over the last 10 years.
A low-risk wager with a big payout potential
VICI Properties has increased its dividend every year since its formation five years ago. The entertainment property-focused REIT gave investors their most recent raise in September, boosting the dividend payment by 8%. It currently offers an attractive dividend yield of 4.6%.
VICI Properties expects to continue growing its dividend. The company recently closed the books on a transformational year that saw it acquire $22.8 billion of entertainment properties, driven by its acquisition of fellow entertainment property REIT MGM Growth Properties for $17.2 billion and its $4 billion acquisition of the Venetian Resort Las Vegas. The company also completed $4.5 billion in other smaller acquisitions and development deals.
The REIT has continued to make deals this year. It recently entered the Canadian market, buying four properties in Alberta from PURE Canadian Gaming in a roughly $200 million sale-leaseback transaction.
Even with all that wheeling and dealing, VICI Properties has the financial flexibility to continue growing its dividend and expanding its portfolio. That should enable the company to continue producing attractive total returns. The REIT has delivered a more than 17% average annual total return since its formation over five years ago.
The potential to continue producing high total returns
American Tower and VICI Properties have steadily grown their dividends over the years. That has enabled both REITs to produce strong total returns. With more dividend growth likely, they have the potential to continue generating attractive total returns. That upside potential makes them great dividend stocks to buy this March.
