The data is pretty compelling. Dividend-paying stocks have outperformed non-dividend payers by a wide margin. The average dividend stock in the S&P 500 has produced a 9.2% average-annual total return over the last 50 years, according to data from Ned Davis Research and Hartford Funds. That compares to a negative 0.6% for the typical non-payer. However, there's an important caveat. Dividend growth stocks have delivered much higher total returns of 10.2% compared to 6.6% for companies with no change in their dividend policies.
Brookfield Renewable (BEPC +0.00%)(BEP 0.13%) and Enbridge (ENB +0.39%) stand out for their ability to grow their dividends. Because of that, they look like no-brainer stocks for those with a couple of hundred dollars to invest right now. They could earn an above-average return on that money without taking on a lot of risk.
Plenty of power to continue producing market-beating total returns
Brookfield Renewable has increased its dividend by at least 5% annually for the last dozen years. Meanwhile, its predecessors have delivered a 6% compound annual dividend growth rate since 1999. That steadily rising payout has helped power a 16% average-annual total return for Brookfield's investors over the last 20+ years, pulverizing the 7% average total return of the S&P 500.
NYSE: BEPC
Key Data Points
The renewable energy powerhouse has a lot more growth ahead. The company expects to increase its funds from operations (FFO) per share by more than 10% annually through 2027. Four catalysts power that plan:
- Inflation: Inflation-linked rate-escalation clauses in its existing long-term power sales contracts will drive 2% to 3% annual FFO per-share growth.
- Widening profit margins: Several factors (like signing higher priced contracts as existing ones expire) will increase the earnings of its existing portfolio. Brookfield sees margin-enhancement activities driving another 2% to 4% annual FFO per-share growth.
- Development projects: Brookfield has 132 gigawatts (GW) of projects in its development pipeline (over five times its current operating capacity). That gives it a long growth runway and should power 3% to 5% annual FFO per-share growth.
- M&A: The company has an exceptional track record of making value-enhancing acquisitions, which could power up to 9% additional FFO per-share growth each year.
Brookfield has already secured two needle-moving deals this year. The company and its partners agreed to buy Australian utility Origin Energy. That deal will give it a platform for growth in Australia. Meanwhile, Brookfield agreed to acquire Duke Energy's commercial renewable-energy business. That deal will boost its FFO by at least 3% next year from the 5.9 GW operating portfolio and visible growth from its 6.1 GW development pipeline and margin-enhancement opportunities.
The company's growing cash flow should support 5% to 9% annual dividend growth. That's an attractive rate for a payout that already yields more than 5%. Add that yield to Brookfield's earnings-growth rate, and it could deliver total returns in the mid-teens in the coming years.
Lots of fuel to continue pushing its high-yielding payout higher
Enbridge has increased its dividend for the last 28 straight years. The Canadian pipeline and utility operator has grown its payout at a 10% annual rate during that time frame. That's given it the fuel to produce market-beating total returns. Since 2008, Enbridge has delivered an 11.4% average-annual total return, easily outpacing the S&P 500's 8.9% average-annual total return.
NYSE: ENB
Key Data Points
While Enbridge's growth rate has slowed in recent years, it has plenty of fuel to continue increasing the dividend. The company recently agreed to acquire three natural gas utilities from Dominion in a $14 billion deal. The acquisitions will enhance its cash flow by increasing its diversification and regulated earnings. Meanwhile, the new additions will bolster its growth profile. Enbridge plans to invest 1.7 billion Canadian dollars ($1.3 billion) annually into those utilities over the next three years on low-risk, quick-payback capital projects.
Enbridge now has CA$24 billion ($17.7 billion) of secured capital projects across its gas distribution, gas transmission, liquids pipelines, and renewable platforms. These investments should supply it with growing cash flow to support its dividend. Enbridge expects its earnings to expand by about 5% annually, which could fuel dividend growth up to that rate. Add that growth to the company's dividend (currently yielding 7.8%), and Enbridge could produce total annualized returns in the low to mid-teens.
Low-risk, high-return investments
Brookfield Renewable and Enbridge generate stable cash flows backed by long-term contracts and government-regulated rate structures. That gives them the money to invest in expanding their operations and pay attractive and growing dividends. This income and growth combination should enable them to continue producing market-beating total returns. The high probability of earning a high return makes them no-brainer stocks to buy right now.
