2 of the Smartest Dividend Stocks to Buy With $200 Right Now

Dividend stocks can be smart investments. Over the last 50 years, the average dividend-paying stock in the S&P 500 has beaten that broader market index (9.2% average annual total return, versus 7.7%, according to data from Hartford Funds and Ned Davis Research). The highest returns came from companies that grew their dividends (10.2%, versus 6.6% for companies with no change to their dividend policies).

Given their penchant for dividend growth, Enterprise Products Partners (EPD 0.45%) and Brookfield Renewable (BEPC 0.09%) (BEP 0.19%) are wise investments for those seeking to put a little capital to work right now. They should continue producing attractive (and growing) dividend income, giving them the power to deliver strong total returns.

Reaching an impressive milestone

Enterprise Products Partners has a magnificent track record of growing its payout. The master limited partnership (MLP) recently delivered its 25th straight year of distribution growth -- its entire history as a public company.

The energy midstream company increased its payout by 2% from the first-quarter level, putting it 5.3% higher year over year. As a result, it now yields 7.5%.

That's a very nice base return, considering that the dividend yield on the S&P 500 is currently around 1.5%. It would turn a $200 investment into $15 of annual passive income, compared to $3 of yearly dividend income from an S&P 500 index fund.

That payout is on an extremely solid foundation. Energy Transfer generates a massive amount of steady cash flow, backed by long-term contracts and government-regulated rate structures. It has produced $8.2 billion of cash flow from operations over the last 12 months.

Meanwhile, it distributed $4.2 billion of that money to investors. That enabled it to retain $4 billion, which it used to fund expansion projects ($2.1 billion), strengthen its balance sheet ($900 million of debt repayment), and repurchase units ($300 million). The debt repayment lowered its leverage ratio to a very comfortable 3x. That's in the middle of its 2.75x-3.25x target and supports its A-/Baa1 bond rating, the highest in the midstream sector.

That strong financial profile gives Enterprise Products Partners the flexibility to invest in growing its operations so it can continue increasing its payout. It currently has $6.1 billion of major capital projects under construction, $3.8 billion of which will enter service by the end of this year. That gives it a lot of visibility into future growth. Meanwhile, it has the flexibility to continue approving new projects and making acquisitions when opportunities arise.

That earnings and income growth should give Enterprise the fuel to continue generating strong total returns. It has produced an average annual return of 13.8% since its initial public offering in 1998, versus 7.6% for the S&P 500. That would have grown a $200 investment into more than $5,000, compared to about $1,250 in an S&P 500 index fund.

Powerful returns

Brookfield Renewable increased its dividend by 5.5% earlier this year. That marked its 12th straight year of increasing its payout by at least 5%, or every year since its public listing in 2011.

The renewable energy giant currently yields 4.3%. It could turn $200 into nearly $9 of annual dividend income, at that rate.

The company's payout is also on a very sustainable foundation. Brookfield generates predictable cash flow by selling the electricity it produces under long-term, fixed-rate power purchase agreements to utilities and corporate buyers. That enables it to generate very stable cash flow to pay dividends.

Meanwhile, a quartet of catalysts steadily grows its cash flow. Organic drivers like inflation-linked rate increases, capturing higher power prices as legacy contracts expire, and development projects should grow its cash flow per share by 7% to 12% per year through 2027. Meanwhile, acquisitions can add up to another 9% to its bottom line each year.

The company has already secured and funded 8% annual growth during that period, giving it the confidence it can deliver 10%+ annual growth through 2027. That easily supports its plan to increase its dividend by around a 5% to 9% annual rate.

Brookfield's growing cash flow and dividend have helped power strong total returns. Over the last decade, Brookfield Renewable has produced an average annual total return of 13.7%, compared to 12.4% for the S&P 500. That has grown a $200 investment into over $720, compared to about $640 in an S&P 500 index fund.

Smart investments

Enterprise Products Partners and Brookfield Renewable have been exceptional investments over the years. The companies have steadily grown their earnings and dividends, enabling them to produce market-beating returns.

They should have plenty of power to continue growing their attractive payouts in the future. Because of that, they look like wise investments to make right now for those who have a little bit of money to put to work.