You may think of dividend stocks as simply a vehicle for producing cash income from a diversified portfolio, but these types of stocks can actually provide a serious boost if long-term capital appreciation is your goal. According to a study from investment management company The Hartford, from 1960 to 2023, 85% of the cumulative total return of the S&P 500 index was from reinvested dividends.
Hence, if long-term growth is your goal, you may want to make dividend stocks the backbone of your portfolio. However, before you run out and buy the highest-yielding dividend stocks, keep in mind that quality may matter more than quantity. That is, as high-yield dividend stocks come with increased risk and uncertainty, you may want to buy stocks that offer a lower yield but have a stronger track record of both earnings and dividend growth consistency.
With this in mind, you may want to consider the following five high-quality dividend growth stocks if you are looking for dividend stocks to buy and hold forever: Lowe's (LOW 0.73%), NextEra Energy (NEE +0.05%), Realty Income (O 3.16%), Philip Morris International (PM +0.51%), and United Parcel Service (UPS 0.28%).
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Lowe's is a Dividend King with plenty of room to raise its payouts
Home improvement retailer Lowe's is one of the Dividend Kings, as the company has raised its dividend 62 years in a row. Currently, its forward dividend yield is 2%. That may not sound impressive at first, but considering two factors, it's clear that these quarterly cash payouts can really add a boost to long-term returns over time.
NYSE: LOW
Key Data Points
First, Lowe's has been aggressive in raising its dividend over the past decade. Since 2015, Lowe's quarterly payout has grown from 28 cents per share to $1.20 per share, or by more than 15% annualized. Second, even as payouts have surged, the company's dividend payout ratio, or percentage of earnings paid out as dividend, has remained relatively low.
Currently, this stock's dividend payout ratio is around 38%. The market considers payout ratios under 50% to be generally safe, suggesting that Lowe's could continue to aggressively increase its payout for quite some time even if this amount exceeds earnings growth.
NextEra Energy is a great choice for growth, income, and value investors
Formerly known as Florida Power & Light, NextEra Energy's legacy business is operating as an electric utility in Florida. However, the company has become well known for its big pivot toward building out its renewable energy infrastructure. Yet, while all of this sounds capital-intensive, it's not as if NextEra has been skimping in the dividend department.
NYSE: NEE
Key Data Points
Raising its dividend for nearly 30 years in a row, NextEra currently has a 2.7% dividend yield. Furthermore, the company's quarterly dividend has increased nearly threefold since 2015. Admittedly, the stock entered a bit of a slump during the post-pandemic era, as investors cooled on renewable energy plays.
However, long-term growth may still be on the menu for NextEra, even if the green wave expected earlier in the decade never arrives. It all has to do with the AI revolution and the resultant increase in electricity demand. NextEra recently entered a deal with Alphabet's Google subsidiary to provide the tech giant with electricity for its data centers. NextEra plans to generate this electricity by reopening a shuttered nuclear power plant that it owns in Iowa.
Realty Income has had 112 consecutive quarterly dividend increases
Realty Income, a diversified real estate investment trust (REIT), not only has many years of dividend increases under its belt. As the REIT proudly announces on its website, it has increased dividends for 112 quarters in a row. That's 28 straight years of dividend increases arriving quarterly rather than annually.
NYSE: O
Key Data Points
Furthermore, Realty Income, which has a forward dividend yield of 5.5%, makes dividend payments monthly rather than quarterly. This may be more of interest to income investors than investors focused on growing their portfolios, but it's still a unique feature of this stock worth mentioning.
Generating compound annual total returns of 13.5% since going public on the New York Stock Exchange in 1994, Realty Income can also tout that its annualized dividend growth during this same time frame has been 4.2%.
Philip Morris International is smoking the competition with its "smokefree pivot"
Philip Morris International, which makes Marlboro cigarettes outside the United States, but makes cigarette alternatives like Zyn nicotine pouches in the United States, may be the tobacco stock with the least uncertain future prospects. That is, by fully embracing the industry's future focused on products like nicotine pouches and heated tobacco products, the company can adapt to changing habits among smokers and other nicotine users.
NYSE: PM
Key Data Points
As a result of this pivot, the stock has performed strongly. Shares have increased in value not only because of earnings growth but because of valuation expansion as well. As I noted recently, as regulators and society becomes more comfortable with smoke-free tobacco and nicotine products, this stock could finally kick its sin stock discount and rise to value on par with other blue chip stocks in the consumer products sector.
But alongside further growth potential, there's another interesting aspect to the Philip Morris International story. The company has raised its dividend each year since its 2008 spinoff from Altria Group. Currently sporting a forward dividend yield of 3.8%, the company recently increased its quarterly payout by 8.9%.
United Parcel Service is a high-yield dividend growth stock
At first glance, United Parcel Service (UPS) may appear to be one of those higher-yield dividend stocks I alluded to earlier. Currently, this stock has a forward dividend yield of nearly 7%. Typically, when the market prices a stock in a way that gives it a higher-than-average dividend yield, this is a sign of dividend uncertainty -- namely, the elevated risk of an eventual dividend cut.
NYSE: UPS
Key Data Points
However, while UPS's dividend may look unsustainable relative to current earnings, it may not necessarily be under threat. The logistics giant has increased its dividend for well over a decade. This suggests that the company may be looking to continue building a dividend-growth track record. In turn, while future dividend growth may arrive more slowly, the current rate of payout may be secure.
Inflation, tariffs, and the post-pandemic slump in parcel demand have all impacted earnings, but UPS may have a path back to higher profitability, further bolstering dividend security. How? Through downsizing and automation efforts, which could result in $3.5 billion in annual cost savings . Long term, automation efforts in particular could lead to further margin expansion, enabling the company to continue its dividend growth streak.
