The Smartest Dividend Stocks to Buy With $400 Right Now

Dividend stocks can be very smart investments. They've historically delivered market-beating total returns.

The best returns have come from companies that increase their dividends. They've produced an average annual return of 10.2% over the last 50 years, according to Ned Davis Research and Hartford Funds. That has outpaced an equal-weight S&P 500 index (7.7% annualized) and companies with no change in their dividend policy (6.6% annualized).

There are lots of high-quality dividend stocks. Enbridge (ENB -1.21%) and Prologis (PLD 0.69%) currently stand out as some of the smartest dividend stocks to buy for those with around $400 to invest. They offer higher-yielding payouts that should continue rising in the future. That puts them in a strong position to deliver market-beating returns from here.

The power to continue producing powerful total returns

Enbridge has been a very enriching dividend stock over the years. The Canadian energy infrastructure giant has delivered a 12.3% annualized total return since 2000, outpacing the S&P 500's 9.1% annualized total return. Enbridge would have grown a $400 investment into nearly $5,300 at that rate. That's almost double what that same investment would have earned in an S&P 500 index fund.

The pipeline and utility company should have plenty of fuel to continue enriching its shareholders in the future. Enbridge pays a very generous dividend (currently yielding 7.5%), providing investors with a very nice base return.

That payout is on a very firm foundation. Enbridge generates very predictable cash flow (98% comes from long-term contracts and government-regulated rate structures) while paying out a relatively conservative amount in dividends (60%-70%). That enables the company to retain meaningful cash flow to fund new investments.

Enbridge has the financial capacity (retained cash flow and balance sheet flexibility) to fund the investments needed to grow its earnings by about 5% per year over the medium term. It already has a lot of that growth lined up. It agreed to buy three natural gas utilities earlier this year in a transformational transaction that will boost its earnings in the near term and enhance its long-term growth prospects.

Enbridge also has a multibillion-dollar backlog of commercially secured capital projects. It has a long list of expansion projects under construction that should come online through 2028. Those growth drivers should give Enbridge plenty of fuel to grow its dividend, which it has done for 29 consecutive years.

With a 7%-plus yielding payout and earnings growing by around 5% annually, Enbridge has the power to potentially produce double-digit total returns in the coming years.

Lots of built-in growth

Prologis has also enriched its investors over the years. The industrial REIT has delivered a 12.4% annualized total return since 2000. That has grown a $400 investment into over $6,500.

The warehouse operator is in a strong position to continue growing shareholder value. It pays a solid dividend (currently yielding 2.6%) that has grown rapidly over the years. Prologis has increased its payout at a 12% compound annual rate over the last five years, twice as fast as the S&P 500's average.

The REIT is in an excellent position to continue growing its earnings and dividend at above-average rates. A big driver is its built-in rent growth.

Prologis typically signs long-term leases with tenants that escalate rents at a low-single-digit annual rate. Because of that, it has not fully captured the surge in warehouse rents in recent years. The company estimates its same-store net operating income will grow 9% to 10% per year over the next few years as legacy leases expire and reprice at higher market rental rates.

On top of that, the company will get a boost from development projects and its essential platform (renewable energy and mobility offerings). These catalysts position the company to deliver 9% to 11% annual funds from operations (FFO) per-share growth through at least 2026. In addition, it has upside potential from making acquisitions and growing its strategic capital platform.

These drivers should enable the company to continue growing its dividend at an above-average pace. That combination of rising dividend income and earnings growth puts Prologis in a strong position to continue producing market-crushing total returns.

Wealth-creating dividend stocks

Enbridge and Prologis have been fantastic investments over the years. They've grown their earnings at decent rates, enabling them to pay attractive, steadily rising dividends. They're in an excellent position to continue increasing their profits and payouts in the future.

That should give them the fuel to continue producing market-beating total returns. Because of that, they look like smart dividend stocks to buy right now -- even if you don't have a lot of money to invest.