Dividend growth is central to the dividend-focused investor. The big problem is inflation, which erodes the value of the dollar over time. If your dividend payments don't grow, you are effectively losing buying power. However, there are two ways to look at dividend growth stocks. This is why some investors will love Visa (V 0.51%) and others will be much happier with Realty Income (O +0.94%).
Why buy Visa right now?
Visa is a global payment processor. It acts as an intermediary between buyers and sellers, ensuring a smooth and safe financial transaction. It charges a small fee for each transaction it handles. Although each individual fee is pretty meaningless, Visa is one of the world's largest transaction processors. In fiscal 2025 (ended Sept. 30), the company processed 257.5 billion transactions, up 10% year over year.
NYSE: V
Key Data Points
This continues a long trend of business growth, as card-based payments have increasingly replaced cash payments. The continuing growth of e-commerce should keep this trend going for years to come. The dividend yield is only 0.8%, but Visa is both a growth stock and a dividend growth stock. Its dividend has increased by 375% during the past decade, which should attract investors who don't need income right now but want to live off of dividends in the future.
What's exciting about Visa today is its valuation. It is not cheap now, and rarely is, but it looks reasonably priced compared to its own history. The roughly price-to-earnings (P/E) ratio of 32 is a touch below its five-year average of 33. A fair price for a dividend growth stock like Visa will probably be worth it for most long-term dividend growth investors. A $2,000 investment will let you buy about six shares of the stock.
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Why buy Realty Income today?
Realty Income sits at the other extreme of the dividend growth story. Compared to Visa, it is a slow-moving dividend tortoise. During the past decade, Realty Income's dividend has increased by 40%. That said, the dividend has increased for three decades at a compound annual rate of 4.2%. That's just a little faster than the historical growth rate of inflation, so the buying power of Realty Income's dividend has increased slightly over time.
The big difference here is the dividend yield. While Visa's sub-1% yield is tiny, Realty Income's 5.3% dividend yield is relatively large. If you are trying to live off the income your portfolio generates, Realty Income could be a nice addition, with $2,000 being enough to buy about 32 shares.
NYSE: O
Key Data Points
Realty Income is one of the world's largest real estate investment trusts (REITs). It has a globally diversified portfolio with assets spread across different property types. The net lease approach Realty Income uses means that its tenants pay for most property-level expenses, reducing the REIT's risk and costs at the same time. It is built from the ground up to be a conservatively run dividend payer. It is the kind of reliable dividend stock an investor buys to sleep well at night. Notably, the yield is more than four times larger than the yield offered by the S&P 500 index.
Different ways to play dividend growth
Dividend investing encompasses many things, though investors often focus only on dividend yield. Don't forget that dividend growth can be a powerful tool in your investment toolbox, too. Visa is the kind of attractive growth stock that dividend investors can find if they focus on dividend growth. But even if you prefer high yield, don't forget the importance of keeping up with inflation, which a reliable dividend grower like Realty Income will let you do.
