Some companies stand out for their ability to pay dividends. They offer attractive yielding dividends that steadily grow over time.
Black Hills Corporation (BKH -0.63%), Brookfield Renewable (BEPC 0.09%) (BEP 0.19%), and NextEra Energy Partners (NEP -0.89%) have exceptional dividend track records and appealing yields. That makes them stand out to a few Fool.com contributors as dividend stocks investors shouldn't hesitate to buy.
Attractive yield, great dividend history
Reuben Gregg Brewer (Black Hills): With a dividend yield of around 4.3%, Black Hills Corporation isn't the highest-yielding utility you can buy. With a market cap of $3.8 billion and a customer base of 1.3 million customers, it isn't the largest utility around.
And yet, with over 50 years' worth of annual dividend increases under its belt, it is a highly elite Dividend King that's worth a close look for income-oriented investors. The dividend has been increased at a 5% annualized clip over the training one-, three-, five-, and 10-year periods. That's not only consistent but also fairly attractive for a utility stock.
Black Hills has pulled back of late, pushing the yield up near its highest levels of the past decade, because rising interest rates have made alternative income investments, like CDs, more competitive. Only CDs don't offer dividend growth potential.
Another problem is that Black Hills is pulling back on capital spending this year to strengthen its balance sheet. It will kick spending up a bit next year and then settle back into a more normal range thereafter. That's just prudent capital management for a company with a long history of success (you don't become a Dividend King by accident).
Meanwhile, Black Hills benefits from operating in advantaged markets. Customer growth in its key markets averaged 5.8% over the past five years. The average population growth across the United States was 2%. In other words, Black Hills is seeing more customers, an increased need for regulated capital investments, and, all in, a steadily growing business. This isn't an exciting stock, but it is a cornerstone-type investment trading with a historically attractive yield.
A powerful passive income producer
Matt DiLallo (Brookfield Renewable): Brookfield Renewable has been an exceptional dividend stock over the years. The company and its predecessor investment vehicles have grown their distributions to investors at a 6% compound annual rate since the initial entity was formed in 1999. That steadily growing payout has helped power market-crushing total returns. The global renewable energy producer has delivered a 16% average annual total return since inception, absolutely obliterating the S&P 500's 7% average annual total return.
The company is in an excellent position to continue producing robust total returns. Brookfield Infrastructure has a quartet of drivers that should power double-digit funds from operations (FFO) per-share growth through at least 2027:
Image source: Brookfield Infrastructure. FFO = funds from operations. M&A = mergers and acquisitions.
Brookfield has already secured and funded a large portion of that growth. Among its drivers is a backlog of 132 gigawatts of emissions-free energy projects it currently has under various stages of development. That's enough to power 18 million homes per year while offsetting nearly all the annual emissions of a country the size of Australia.
Meanwhile, it continues to find new growth opportunities. For example, it recently agreed to acquire Australian utility Origin Energy. Brookfield and its partners plan to decarbonize Origin by building new renewable-energy-generating capacity, allowing Origin to retire its coal-fired power plant. These investments will reduce emissions while growing earnings.
The company's growing cash flow will enable it to continue increasing its dividend. Brookfield expects to grow its payout (which currently yields an attractive 4.2%) by 5% to 9% per year. The company's growing earnings and dividend payments should give it the power to produce attractive total returns. That visible income and upside potential should give any investor the confidence to buy shares without hesitation.
A solid dividend growth stock
Neha Chamaria (NextEra Energy Partners): Income investors often chase dividend yields and use them as the only metric to decide which stocks to buy. That's one of the biggest mistakes they could make since a high yield doesn't necessarily mean the dividends are safe and reliable. Some of the best dividend stocks, in fact, are those that have grown their dividends consistently for years and should continue to do so, underpinned by earnings and cash-flow growth.
NextEra Energy Partners yields a good 5.4%, but most importantly, it's a dividend growth stock, which means the company has increased dividends for several years now and is committed to sticking with the trend. NextEra expects to grow its dividend per share annually by 12% to 15% between 2022 and 2026, driven largely by planned acquisitions from its parent NextEra Energy's Energy Resources business, and move to become a renewable energy pure play.
NextEra has a diversified portfolio of clean energy assets in wind, solar, storage, and natural gas pipelines. However, the company plans to sell its natural gas pipelines to focus exclusively on renewables, and it has structured the strategic move in such a way that its dividend growth will be unaffected despite the divestment of a substantial asset.
Clean energy has strong growth potential, and NextEra expects to unlock greater value for shareholders by becoming a 100% pure-play clean energy company. It is already on a strong footing financially, and its parent NextEra Energy's backing means NextEra Energy Partners should always have ample opportunities to grow without worrying about funding. It's a great business model, and with NextEra Energy Partners shares still down about 17% so far this year, it is one dividend stock you shouldn't hesitate to buy.
