Investors often see dividend stocks as a way to earn passive income in the near term, but there's an even bigger advantage of owning dividend stocks: Dividends are one of the best ways to build wealth in the long run, especially if you invest in dividend-growth stocks. Over time, top stocks that pay regular and growing dividends can build you a fortune. You should just know when and what stocks to buy. If you have $5,000 today, buying the following three dividend stocks, which also offer high yields, is a great place to start.
This 9.4%-yielding stock has a big acquisition coming up
While some dividend stocks in the energy patch boast an impeccable dividend history, the same can't be said for Energy Transfer (ET 0.12%). The midstream oil and gas giant, however, is making all the right moves to grow its dividends and support its sky-high yield of 9.4%.
Energy Transfer's dividend cut in 2020 didn't sit well with investors. It was, however, not the only oil and gas company to cut dividends during that exceptionally challenging phase for the sector. More importantly, Energy Transfer wanted to take care of debt first, and it was the right decision.
Having paid down a considerable amount of debt in recent quarters, Energy Transfer is now confident of growing its dividends. It recently announced a goal of increasing its dividend payout by 3% to 5% every year and is pouring billions of dollars into growth to support that goal.
After acquiring Lotus Midstream for around $1.5 billion earlier this year, Energy Transfer will now acquire Crestwood Equity Partners in a $7.1 billion all-equity deal later this year. While Lotus expanded Energy Transfer's footprint in the Permian Basin, Crestwood will give it headway into Williston, Delaware and Powder River basins in Montana and Wyoming.
Energy Transfer expects the acquisition to be "immediately accretive" to its distributable-cash-flow per unit but neutral to its "leverage metrics." In other words, the Crestwood acquisition should contribute enough cash flows to allow Energy Transfer to grow its dividends steadily without burdening it with any unmanageable debt. That sounds like a deal, and now's a good time to buy some shares of this high-yielding oil stock to earn some extra income.
A no-brainer dividend stock to buy
Another top dividend stock you can buy right now is NextEra Energy Partners (NEP -0.89%). Higher interest rates and muted quarterly numbers have hurt the stock's performance this year. What many don't seem to realize, though, is that the company hasn't stopped growing, and its cash flows and dividends are consistently heading higher. In fact, with the renewable energy stock losing nearly one-third of its value so far this year, there couldn't be a better time to buy.
In its most recent quarter, NextEra Energy Partners increased its annualized dividend per share by nearly 12%. Through 2026 at least, the company expects to increase its dividend annually by 12% to 15%. That's solid growth, especially considering that NextEra Energy Partners will be selling off its natural gas assets over the next couple of years to convert itself into a 100% renewables pure-play.
The company has planned divestment in such a way that it can still fund dividend growth despite the loss of cash flows from its natural gas business, which presently contributes almost 20% to its cash available for distribution.
Of course, NextEra Energy Partners generates cash flows from contracted assets, so dividend stability isn't a problem. As for dividend growth, the company has plenty of avenues, including a humongous pipeline of wind and solar energy projects, access to parent NextEra Energy's renewables portfolio, which exceeds 38 gigawatts, and opportunistic acquisitions. NextEra Energy Partners believes it could add nearly 300 gigawatts of capacity from potential acquisitions and industry growth through 2026.
There's a lot to like about this 6.8%-yielding stock, and for anyone looking to bet on clean energy, now's a great time to buy some shares in NextEra Energy Partners.
If you think oil prices will rise, buy this stock
Income investors flocked to Devon Energy (DVN 0.19%) stock in 2022 as its dividends boomed. Specifically, the variable component of Devon Energy's fixed-plus-variable dividend framework rocketed as crude oil prices surged. That also explains why the oil and gas producer's dividend growth has taken a backseat this year -- blame the decline in oil prices.
Yet Devon Energy is still one heck of a dividend stock to own if you want some extra bucks every quarter over and above a fixed dividend check. The stock's dividend has two components: It pays a fixed dividend every quarter that's sustainable through market cycles and then pays out a variable dividend of up to 50% of the free cash flow remaining after funding its fixed dividend.
Now, consider that Devon Energy can fund all its capital and operating expenditures at a pricing as low as $40 per barrel of West Texas Intermediate crude oil. That means even in a year like 2023 when oil prices are considerably lower versus last year, Devon Energy is still making enough money to pay a variable dividend over and above a fixed dividend.
Also, the company aims to increase production by a modest 5% every year. By doing so, it can grow its cash flows in a high oil-price environment but also avoid nasty shocks in the event of oil-market turmoil. That's a prudent strategy, one that makes Devon Energy an even more appealing dividend stock to buy now while it's still down about 18% this year and yields 6.8%.
