My Top Income Stocks to Buy in January

Last year was strong for the stock market, broadly speaking. The S&P 500 soared 24%, while the Nasdaq rocketed 43%. Some stocks enjoyed even better performances.

However, there were some notable laggards. Several top dividend stocks underperformed last year, and because of that, they look like great buys this month. In particular, NextEra Energy (NEE -1.36%), Brookfield Infrastructure (BIPC -1.04%) (BIP -0.80%), and Realty Income (O -0.17%) stand out as top buys for income investors in January. They offer higher-yielding payouts that should continue growing in 2024 and beyond.

Lots of power to continue growing its payout

NextEra Energy's stock price tumbled more than 27% in 2023 -- a sell-off that came even though the leading clean energy-focused utility was having another strong year. Its adjusted earnings per share were up 10.8% through the third quarter, putting the company on track to achieve its full-year forecast. Management also reaffirmed its view that it expected earnings to be toward the upper end of the long-term growth target range of 6% to 8% annually through 2026. That optimism came despite some issues with its affiliate, NextEra Energy Partners, which had to slow its dividend growth rate due to the impact of higher interest rates.

Due to its share price slump, NextEra Energy's dividend yield has risen to over 3%. That's around double the S&P 500's average dividend yield today. That's a nice starting point for such an excellent dividend stock. The company has increased its payouts annually for more than a quarter century, growing them at an 11% compound annual rate during the last decade.

NextEra should have plenty of power to continue pushing its payouts higher. It currently expects to increase its dividend by around 10% through at least this year. Meanwhile, it has lots of visibility into its earnings growth through 2026. It should also have lots of fuel to continue growing after that, given the world's tremendous need to continue investing in clean energy in the decades ahead to reduce carbon emissions.

Lots of momentum heading into 2024

Shares of Brookfield Infrastructure slumped more than 9% in 2023. That decline pushed its dividend yield up to 4.3%.

Brookfield Infrastructure had another good year in 2023. Based on its outlook for the final quarter, it expects its funds from operations (FFO) per share to grow by more than 10% for the year. That's a continuation of the company's strong growth rate over the last decade (11% compound annual FFO per share growth and 9% compound annual dividend growth).

Meanwhile, Brookfield is in a strong position to continue growing its earnings and dividend in 2024 and beyond. It closed several acquisitions toward the end of last year (a leading container leasing company and three data center platforms), giving it lots of momentum heading into 2024. On top of that, it has a strong organic growth profile driven by elevated inflation and several near-term expansion projects (Heartland Petrochemical Complex, its investments in Intel's semiconductor manufacturing complexes, and several data center development projects). These catalysts could drive double-digit annual FFO per share growth in the near term. That would easily support Brookfield's expectations of delivering 5% to 9% annual dividend growth over the long term.

Building in a solid growth rate for the coming year

Realty Income's stock also slumped about 9% last year. That drove the dividend yield of the real estate investment trust (REIT) up to 5.3%.

The REIT slipped even though 2023 was another solid year of steady growth. The company was on track to acquire $9 billion of real estate last year. Those deals and rising rental rates pushed its adjusted FFO per share up by more than 4% year-over-year in the third quarter. That steady growth enabled the REIT to raise its monthly payouts five times last year.

Realty Income has already gotten a head start on growing in 2024. It agreed to buy fellow REIT Spirit Realty in a $9.3 billion deal. The company expects the acquisition to increase its adjusted FFO by more than 2.5% this year. Meanwhile, the combined company is expected to generate over $800 million in post-dividend free cash flow in 2024. It anticipates reinvesting this cash flow into new income-generating real estate to push its growth rate into its 4% to 5% annual target range without raising any additional equity capital. There's upside to that growth rate if the REIT raises equity capital to fund additional investments. Given the visibility it has into its growth, Realty Income should have no problem increasing its dividend, which it has done 123 times since its public market listing in 1994.

High-yielding payouts that should head higher in the coming year

With their share prices slumping last year, NextEra Energy, Brookfield Infrastructure, and Realty Income offer even more attractive dividend yields to start 2024. Meanwhile, all three companies appear poised to continue increasing their dividends this year. That makes them stand out as some of the top income stocks to buy in January.