Dividend stocks have historically been enriching investments. Over the last 50 years, the average dividend stock in the S&P 500 has produced a 9.2% average annual total return, according to data from Ned Davis Research and Hartford Funds. That outperformed an equal-weighed S&P 500 index, which delivered a 7.7% average annual total return. At those rates of return, a $5,000 investment in dividend stocks (with dividends reinvested) would have grown to over $400,000 during that time frame, more than double the result that would have been delivered by a similar investment in the S&P 500.
Companies with higher dividend payout ratios (74% on average) -- which typically have higher dividend yields -- outperformed the market 67% of the time, according to data from Hartford Funds and Wellington Management. That tied for the second-best average outperformance over the long term. This data shows how owning high-quality, high-yielding dividend stocks can help make you richer over the long term.
Enbridge (ENB +0.84%), Brookfield Infrastructure (BIPC +0.00%)(BIP 0.32%), and Realty Income (O 0.95%) have all been wealth-creators for their shareholders over the years, mainly due to their big-time dividends. And all of them are in excellent positions to continue enriching their investors. That makes them great stocks to invest $5,000 in for the long haul.
The fuel to continue paying dividends
NYSE: ENB
Key Data Points
Enbridge has been a dividend powerhouse over the years. The Canadian energy infrastructure giant has paid dividends to its investors for over 68 years, and delivered its 28th straight annual dividend hike in 2023. Enbridge's high-yielding and steadily rising dividend (it yields 7.6% at current share prices) has helped give it the fuel to produce an 11.4% average annualized total shareholder return since 2008, easily outpacing the S&P 500's 8.9% return.
The pipeline and utility company has a low-risk business model. Roughly 98% of its earnings come from stable cost-of-service or contracted assets, giving it steady cash flows. Enbridge targets paying out 60% to 70% of its stable cash flow in dividends. That gives it a solid cushion while allowing it to retain meaningful cash to fund its continued expansion. Enbridge also has a strong investment-grade balance sheet.
The company uses its financial flexibility to invest in expansion projects and make acquisitions. It recently agreed to buy three natural gas utilities in a $14 billion deal. That transaction will enhance the overall stability of its cash flows while increasing its earnings and growth profile. Enbridge also has an extensive backlog of commercially secured expansion projects -- natural gas pipelines, utility expansions, and renewable energy projects. Based on these catalysts, management is of the view that it can grow its earnings by around 5% per year over the medium term. That should allow it to sustain and increase its hefty dividend, and continue enriching its investors.
Owning vital infrastructure should keep paying off
NYSE: BIP
Key Data Points
Brookfield Infrastructure has been a wealth-creating machine since its formation in 2008. The global infrastructure operator has delivered a 14% annualized total return, easily beating the S&P 500's 10% annualized total return over that period.
The utility, energy midstream, transportation, and data infrastructure company pays a steadily growing dividend that at the current share price yields 5.7%, and it has increased its payout for 14 straight years. The company backs that dividend with a solid financial foundation. It generates stable cash flows: 90% of its earnings come from regulated or contracted assets. Meanwhile, it has a reasonable dividend payout ratio that stays within the 60% to 70% range, and a strong investment-grade balance sheet.
Brookfield expects its stable cash flow to grow organically by 6% to 9% annually, fueled by inflation-linked rate increases, volume growth as the global economy expands, and expansion projects funded by its retained cash flow. Meanwhile, its capital recycling program (selling mature assets to fund higher-return new investments) will further boost its bottom line. These factors should enable it to increase its dividend by 5% to 9% annually over the long term. That combination of dividend income and growth should continue enriching investors.
A wealth-building real estate stock
NYSE: O
Key Data Points
Realty Income has also been a wealth-builder over the years. The real estate investment trust (REIT) has delivered a 13.4% annualized total return since its public market listing in 1994. A big driver of those returns has been its steadily rising dividend. The REIT has given its investors raises 122 times, including in the last 104 consecutive quarters.
The company should be able to continue growing its dividend, which at the current share price yields 5.7%. It focuses on owning properties that generate very stable rental income. Meanwhile, it has a reasonable dividend payout ratio (75.1% in the third quarter). That enables it to retain cash it can use to acquire additional income-producing properties. Realty Income also boasts one of the strongest balance sheets among REITs, giving it more flexibility to continue expanding its portfolio.
Management believes Realty Income can grow its earnings per share by 4% to 5% annually over the long term. Factor in its high-yielding dividend, and it's in an excellent position to continue building wealth for its shareholders.
Building wealth one dividend payment at a time
Enbridge, Brookfield Infrastructure, and Realty Income have enriched their investors over the years, and the key way they've done so is via their high-yielding and steadily rising dividends. All three appear poised to continue growing their payouts, making them great ways to invest $5,000 today for a richer future.
