Dividend stocks have proved to be powerful long-term wealth creators. Over the last 50 years, the average dividend stock in the S&P 500 has produced a 9.2% average annual total return, outperforming the 7.7% average annual total return of an equal-weighted S&P 500 index. The best returns have come from dividend growers and initiators at 10.2%.
NextEra Energy (NEE +0.16%) and Brookfield Infrastructure (BIPC +0.00%)(BIP +0.85%) stand out for their ability to increase their dividends. That makes them great stocks to buy and hold for those seeking a potential lifetime of steadily rising income.
A powerful dividend growth stock
NYSE: NEE
Key Data Points
NextEra Energy has raised its dividend for 30 consecutive years. The utility has grown its payout at an 11% compound annual rate over the past decade, which is well above average. That has helped give it the power to produce a 13.1% average annual return over the last 10 years. It should have plenty of fuel to continue increasing its payout, which currently yields an attractive 3.3%. At that rate, it could turn a $1,000 investment into a $33 and growing annual income stream.
The utility updated its dividend policy early this year, extending its growth outlook further. It now expects to deliver above-average dividend growth of roughly 10% annually through at least 2026.
Two factors power that plan. It had a low dividend payout ratio of 59% at the end of 2023, well below its peer average of about 65%. The other driver is its strong earnings growth profile. NextEra Energy expects to grow its adjusted earnings per share by 6% to 8% annually through 2026, with operating cash flow growing at or above that range.
Meanwhile, the company's longer-term growth prospects are just as bright. Forecasters expect U.S. renewable energy demand to grow at a 13% compound annual rate through the end of the decade. That drives the view that the country will build more renewable energy capacity over the next six years (375-450 gigawatts) than it built over the last 30 years (235 GW). That would still only be a fraction of the capacity the country needs to decarbonize the economy by 2050. As the leader in renewables, NextEra Energy is in an excellent position to capitalize on this opportunity. That should give it plenty of power to continue increasing its dividend, which could help fuel robust total returns.
Focused on three megatrends
NYSE: BIPC
Key Data Points
Brookfield Infrastructure has also put together a strong record of growing its dividend. The global infrastructure operator delivered its 15th straight year of increasing its payout earlier this year. It has grown the dividend at a 10% compound annual rate since its formation in 2009. That has helped fuel a total return of 11.7% over the last decade.
The company aims to increase its already high-yielding dividend of 4.7% at a 5% to 9% annual rate over the long term. Driving that view is its stable cash flow, a conservative payout ratio, and strong growth drivers. Some 90% of its funds from operations (FFO) are regulated or contracted, and it's paying out only 60% to 70% of its FFO.
Brookfield Infrastructure has been focusing its portfolio to capitalize on three long-term global megatrends: deglobalization, digitalization, and decarbonization. The company closed over $2 billion of new investments last year in its transport (deglobalization) and data (digitalization) segments, which should drive robust growth in 2024 and beyond. It's also investing heavily in organic expansion projects across those three trends. Notable investments include a semiconductor manufacturing complex in the U.S. and several data center development projects around the world.
The company believes that acquisitions, expansion projects, and other organic growth drivers will fuel 10%-plus FFO per share growth over the long term. Given its focus on trends with long runways, Brookfield should be able to continue increasing its dividend for decades to come. That growing payout could enable Brookfield to produce strong total returns.
Lots of growth ahead
NextEra Energy and Brookfield Infrastructure have delivered above-average dividend growth. That should continue in the future, driven by their focus on major megatrends. Add in their above-average yields, and they're great dividend stocks to buy and hold for a lifetime of income and strong capital gains potential.
