Investing just modest sums of money over time in dividend stocks, and reinvesting those dividends, can make many investors rich, or at least financially comfortable. 

Two dividend stocks that are worth considering buying now are leading U.S. water and wastewater utility American Water Works (NYSE:AWK) and electric utility and renewable energy powerhouse NextEra Energy (NYSE:NEE).

Rising arrow atop stacks of currency.

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How dividend stocks can make you rich: compounding dividends

Dividend stocks are an amazing way to grow wealth over time because of compounding. When you reinvest your dividends (rather than take your dividends as cash), those dividends will also generate dividends, and so on. So investing in wisely selected dividend stocks will enable you to grow your money exponentially over time. 

AWR Chart

Data by YCharts.

The preceding chart shows the performances of shares of American States Water (NYSE:AWR), a California-based water and wastewater utility, and NextEra Energy. (I couldn't include American Water Works -- which I favor -- because it's only been publicly traded since 2008. So for the purpose of illustration, I highlighted the second-largest pure-play U.S. water utility.)

Over time, the compounding of dividends causes the gap to grow wider between each stock's price appreciation and its total return, which is the performance that results when dividends are reinvested. 

Here's what $5,000 invested 30 years ago would be worth:

  • American States Water: $233,000 (66% from the reinvested dividends).
  • NextEra Energy: $302,000 (67% from the reinvested dividends).
  • S&P 500 (such as by investing in an index fund): $105,000.

2 of the best dividend stocks for long-term investors

Company Market Cap Dividend Yield Wall Street's Projected Annualized EPS Growth Over Next 5 Years 3-Year Total Return 10-Year Total Return

American Water Works

$43.1 billion 1.36%


112% 638%
NextEra Energy $158 billion 1.91% 8.2% 104% 697%

S&P 500

N/A 1.30% N/A 62.1% 380%

Data sources: Yahoo! Finance and YCharts. Data as of Sept. 24, 2021. EPS = earnings per share.

American Water Works

Water utilities are attractive for a few reasons, including the fact that their regulated businesses are legal monopolies, and their main product -- fresh water -- is necessary for life and has no substitutes.

American Water has long been my favorite in this group, mainly because it's the largest and the most geographically diverse in the U.S. water and wastewater industry. (It will have regulated businesses in 15 states once it completes the sale of its New York State business.) These traits give it an advantage when it comes to making acquisitions, and this is a considerable positive because its industry is fragmented. 

Moreover, climate change (specifically rising average temperatures) has already begun to provide a boost to American Water's results. As I recently wrote, the company is one of three top climate-change stocks to consider buying now.

American Water has raised its dividend every year since it went public in 2008. Over the last five years, the dividend has a compound annual growth rate of about 10%. Management expects to continue to raise the dividend annually at the high end of the 7% to 10% range through at least 2025.

NextEra Energy

NextEra Energy is the largest U.S. electric utility by market cap. The company operates two regulated electric utility companies in its home state, including Florida Power & Light, the largest regulated electric utility in the country based on retail electricity produced and sold.

In addition, through its wholesale power generator subsidiary, the company is the world's largest producer of renewable energy from the wind and sun and a world leader in battery storage. The Biden administration's push to notably increase the use of renewable energy to help slow climate change should benefit NextEra Energy.

The company aims to continue to increase its dividend at an annual rate of about 10% through at least 2022. 

Don't let concerns about rising interest rates keep you out of top dividend stocks

Granted, the Federal Reserve could begin raising interest rates relatively soon, and when rates rise, fixed-income investments become more attractive relative to dividend stocks. However, even with a few hikes, rates will still be near historical lows. Moreover, if you invest in dividend stocks regularly over the long term, you should be buying them as rates decrease as well as increase.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.