Dividend stocks have historically outperformed non-dividend-payers by a wide margin. Over the last 50 years, the average dividend-paying stock in the S&P 500 has delivered an average annual total return of 9.2%. That compares to a negative 0.6% average annual return for non-payers, according to data by Hartford Funds and Ned Davis Research. Meanwhile, companies that initiate and then grow their dividends deliver even better performance (10.2% returns versus 6.6% for companies with no change to their dividend policy).
Given that data, it may pay to fill your portfolio with companies that can increase their dividends. A few Fool.com contributors think that Stanley Black & Decker (SWK +2.71%), Chevron (CVX 1.31%), and Enbridge (ENB +0.04%) stand out for that ability. Here's why they think investors should take a closer look at these dividend stocks.
A struggling Dividend King
Reuben Gregg Brewer (Stanley Black & Decker): No company survives for more than a century without going through some hard times. That's why investors should probably give toolmaker Stanley Black & Decker, which traces its history back to 1843, the benefit of the doubt today.
The list of negatives this industrial stalwart is facing is notable, including inflation, a balance sheet overhang from a string of acquisitions, and operations that need to be streamlined. These problems are causing some near-term pain in the form of depressed earnings, but management is working on all of them.
NYSE: SWK
Key Data Points
The company's dividend was last raised in September of 2022, increasing its annual dividend streak to an impressive 56 consecutive years. That makes Stanley Black & Decker a highly elite Dividend King. But it's important to note that the problems the company faces were well known at the time of the last dividend increase, so the hike was made despite those headwinds. That suggests the board is very confident in Stanley Black & Decker's long-term future.
SWK Dividend Yield data by YCharts.
However, there's an interesting little quirk to that midyear dividend hike. If the company doesn't increase the dividend in 2023 the annual dividend will still be higher than it was in 2022, adding another year to the annual streak. It won't have to increase the dividend again until the final quarter of 2024 to keep the streak alive, giving it extra time to deal with its current problems before the dividend needs to be discussed again. With a historically high yield of 4%, more aggressive income investors might want to dig in here.
Lots of fuel to keep growing the dividend
Matt DiLallo (Chevron): Chevron has one of the best dividend track records in the oil patch. The integrated energy behemoth raised its dividend payment by 6% earlier this year, marking its 36th straight year of increasing its dividend. Among U.S. oil producers that's a record second only to ExxonMobil, which has increased its payout for 40 straight years. And Chevron has grown its dividend at a 6% compound annual rate over the last 15 years; that's a strong growth rate during a volatile and challenging time for oil companies.
NYSE: CVX
Key Data Points
The company should continue to increase its dividend. It expects free cash flow to grow by more than 10% annually through at least 2027, fueled by its high-return investments to grow its traditional and lower-carbon energy businesses. (This outlook assumes that oil averages $60 per barrel, well below the current level of around $80.) That will enable Chevron to generate enough cash to cover its capital expenditures plan, a growing dividend, and a meaningful share repurchase program (it expects to retire 3% of its outstanding shares each year).
Chevron also boasts an elite balance sheet, further supporting the dividend. It ended last year with almost $18 billion in cash, equivalents, and marketable securities against about $23 billion of debt, giving it a low net debt ratio of 3.3% of combined net debt and shareholders' equity. That gives it lots of financial flexibility to continue paying dividends, investing in growth, and repurchasing shares in a more turbulent oil market.
With a dividend currently yielding 3.6%, and which should continue rising, Chevron is an attractive oil stock for those seeking a steadily growing passive income stream.
A solid dividend track record
Neha Chamaria (Enbridge): The oil and gas patch has some well-paying dividend stocks, but only a few are known for dividend growth. Enbridge is one of them. The Canada-based energy infrastructure company started growing its dividend in recent decades, and in December 2022, it added another year to its streak when it increased its dividend by 3%. Last year was its 28th consecutive year of annual dividend raises. (The company has paid a dividend every year for nearly 68 years now.)
NYSE: ENB
Key Data Points
Enbridge's track record speaks for itself: It's grown its dividend at a compound annual growth rate of 10% since 1995. That dividend growth, of course, has added significantly to shareholders' returns over the years:
Enbridge has done a lot of things right to maintain such an incredible dividend streak. To start, the company prioritizes financial strength and flexibility, meaning it strives to maintain debt within a certain level and focuses on cash flow. It then uses that cash to pay dividends and repurchase shares opportunistically, with management also setting a target payout of below 70% of its distributable cash flow. That leaves the company with a lot of room to not just pay but also grow its dividend even in challenging years, and then reinvest any incremental cash into its business for growth.
While Enbridge currently makes money from natural gas midstream, liquids pipeline, and renewables businesses, it is also exploring new growth avenues like renewable natural gas and hydrogen. Overall, the energy giant is spending billions of dollars on growth. As those projects start contributing to cash flow, the company's streak of annual dividend raises should only get longer with time.
The cherry on top: Enbridge stock currently yields a juicy 6.6%, underpinned by steady and growing dividends.
