Dividend income can be extremely valuable for long-term investors as it can help pad your overall returns from a stock. Simply chasing high-yielding stocks, however, isn't necessarily the best or safest idea, as those payouts aren't always sustainable.
Instead, a good combination can be to focus on safe dividend stocks with above-average yields that have also been growing their dividends at fairly high rates, and that have strong financials that can enable them to continue increasing their payouts in the future.
Three stocks that fit that criteria and that have bumped up their dividend payments by at least 50% over the past five years are Home Depot (HD -0.78%), UnitedHealth Group (UNH 2.17%), and NextEra Energy (NEE 0.34%).
Here's a closer look at each of these stocks and why they can be excellent options for you to consider over the long haul.
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1. Home Depot
Home Depot stock yields about 2.2% today, which is better than the S&P 500 average of 1.2%. But the big incentive to hanging on to the retail stock is the potential for the dividend to grow over the years. The company has routinely increased its payout and its current quarterly dividend of $2.30 has risen by 53% from the $1.50 the company was paying its shareholders back in 2020.
Even with the generous increases, Home Depot still has a modest payout ratio of around 62%, suggesting that there's still room for more increases in the years ahead. And while the retailer has been enduring challenging economic conditions with consumers pulling back on spending, it still projects comparable sales growth of 1% for the current fiscal year (which ends in January).
With a strong brand, good financials, and an impressive dividend, Home Depot can make for an ideal stock to buy and hold for the long haul.
2. UnitedHealth Group
Prior to its struggles this year, UnitedHealth Group wasn't typically known for having a high yield. But with the stock falling more than 35% due to rising medical costs and concerns about its growth, it has been in a downward spiral for much of the year. While news of Warren Buffett investing in the business provided a modest bump, it's still down big.
Currently, it yields 2.8%, which is still above average when compared to the S&P 500. But where it really shines is its dividend growth. It pays investors $2.21 per share every quarter, and that's 77% higher than what it was paying back in 2020 -- $1.25.
The poor outlook for the company may be keeping investors away from relying on the stock's dividend, but UnitedHealth's payout ratio is still only 37%; there's plenty of room here for the company to continue paying and increasing its dividend.
And for all the worry about UnitedHealth this year, the business is by no means in a dire situation. Through the first six months of the year, its earnings from operations totaled $14.3 billion, which is down 10% year over year. Although that's disappointing, the health insurer remains in a strong financial position and should improve in the future as utilization rates come down. Overall, it's not as risky a stock as it appears to be.
3. NextEra Energy
Another solid dividend growth stock is NextEra Energy. It's a leading electrical power and infrastructure company in North America. It provides electricity to millions of customers and with the utility business being fairly stable and consistent, it's the type of stock that can be ideal for dividends given the high level of predictability that comes with it.
At about 3.3%, NextEra is the highest-yielding stock on this list. Today, it's paying shareholders a quarterly dividend of about $0.57 per share, 62% higher than the $0.35 it was paying five years ago. And with a payout ratio of 75%, there are no immediate concerns about the safety of the dividend, either. Generally, utility companies pay a high percentage of earnings to shareholders as the recurring income is often a key reason to invest in them.
During its most recent quarter, which ended June 30, the company's operating revenue totaled $6.7 billion and rose by 10% year over year. Operating income of $1.9 billion was also 14% higher than it was in the prior-year period. Given its overall stability and solid growth, NextEra can be one of the better dividend stocks to hang on to for the long haul.
