The data on dividends is powerful: Over the last 50 years, dividend-paying stocks have outperformed their non-paying peers by 2 to 1 (with 9.6% average annual total returns for dividend payers vs. 4.8% returns for non-payers, according to data from Ned Davis Research and Hartford Funds). Companies that steadily increase their dividends perform even better, with 10.7% annualized total returns.
Three companies that offer a compelling combination of an above-average dividend yield and an above-average dividend growth rate are American Tower (AMT -2.48%), Brookfield Infrastructure (BIPC -2.45%) (BIP -1.50%), and Broadcom (AVGO 0.46%). They could produce premier returns in the coming years, which makes them great dividend stocks to buy without hesitation.
A reacceleration awaits
Data infrastructure company American Tower currently yields 3.2%, nearly double the S&P 500's 1.7% dividend yield. That's its highest level since converting to a real estate investment trust (REIT) in 2012. Driving up American Tower's yield are a slumping stock price this year amid continued dividend growth.
American Tower has increased its dividend at a compound annual growth rate (CAGR) of more than 20% since initiating the payment in 2012. While dividend growth has slowed in recent years, it's still well above average. The REIT increased its payout by 12.5% last year, and expects to raise the dividend another 10% in 2023.
It is facing some near-term headwinds that will impact earnings growth this year. However, growth should reaccelerate in 2024 and beyond as those issues fade, and the long-term tailwind of swelling data demand will drive the need for more data infrastructure like cell towers and data centers. This trend should allow the REIT to raise its dividend at a healthy rate for years to come, and continue producing strong total returns. Since converting to a REIT and initiating a dividend in 2012, American Tower has generated a 13.4% average annual total return.
The potential for premier returns to continue
Brookfield Infrastructure is a unique opportunity these days. The corporate shares (Brookfield Infrastructure Corporation) yield 3.5%, while the partnership units (Brookfield Infrastructure Partners) offer an even bigger yield of 4.6%, due to a head-scratching disconnect between the two economically equivalent entities. While the partnership units are a more attractive value these days, either option is worth buying for its total return potential.
Brookfield Infrastructure has done an exceptional job growing value for investors over the years. The company has expanded its distribution to investors at a CAGR of around 10% since its formation in 2009. That has enabled it to produce powerful annualized total returns of 17% ever since.
And it should be able to continue raising its payout in the future. Brookfield Infrastructure expects its funds from operations (FFO) to grow this year by 12% to 15% per share. Driving that outlook are strong organic growth drivers -- inflation-linked contractual rate increases and expansion projects -- and its capital recycling program.
The company expects organic catalysts to drive 6% to 9% growth in FFO per share over the long term, with capital recycling providing an additional boost to the bottom line. That would easily support its long-term plan to increase the payout at 5% to 9% annually.
A free-cash-flow machine
Broadcom yields around 3% these days, depending on the market's mood. That gives it one of the more attractive payouts in the technology sector.
Broadcom has done a phenomenal job growing its dividend over the years. The company, which specializes in semiconductors and infrastructure software solutions, has increased its payout for 12 straight years since it initiated a dividend in its 2011 fiscal year. It has increased its payout by a staggering 6,470% since then, including another 12% last year. Over the last decade, Broadcom has delivered a stunning 37.2% annualized total return.
The technology company should be able to continue raising its dividend. Its policy is to pay shareholders 50% of its prior fiscal year's free cash flow (FCF) in dividends. Free cash flow was up 16% to $3.9 billion in its fiscal first quarter, and it expects stronger FCF in the second quarter. That sets investors up for another sizable dividend increase next year.
Meanwhile, the company continues to make investments to drive future growth. Last year it agreed to acquire VMWare for $61 billion in cash and stock, to accelerate its software business's scale and growth opportunities. While regulators might quash that deal, Broadcom has the financial strength to find other opportunities to scale its software business and increase its cash flow and dividend.
Premier dividend stocks
American Tower, Brookfield Infrastructure, and Broadcom offer attractive dividends, and should be able to continue growing them at above-average rates. That should enable this trio to continue producing premium total returns, making them great stocks to buy right now.
