Dividend stocks can increase your wealth considerably over time because of the magic of compounding. When you reinvest your dividends, those dividends will also generate dividends, and so on and so on. The longer your investing time horizon, the greater will be the benefit of compounding.
Two dividend stocks that are worth considering buying now are U.S. water and wastewater utility giant American Water Works (AWK +1.05%) and cannabis-industry real estate investment trust Innovative Industrial Properties (IIPR 0.83%).
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2 of the best dividend stocks for 2022
| Company | Share Price | Market Cap | Dividend Yield | Wall Street's Projected Annualized EPS Growth Over Next 5 Years | YTD 2021 Return | 10-Year Return |
|---|---|---|---|---|---|---|
|
American Water Works |
$181.27 | $33 billion | 1.33% |
8.2% | 19.8% | 606% |
| Innovative Industrial Properties | $244.32 | $5.9 billion | 2.46% | N/A (42% this year; 35% next year) | 36.3% | N/A* |
|
S&P 500 |
N/A | N/A | 1.27% | N/A | 25.5% | 356% |
Data sources: Yahoo! Finance and YCharts. EPS = earnings per share. YTD = year to date. *Held its initial public offering in December 2016; shares have returned 1,320% since the IPO five years ago. Data as of market close on Dec. 21.
The price of one share of each of these stocks is included so investors can more easily see how they could allocate the amount they want to invest. Granted, some online brokerages let investors buy fractional shares, but not all of them do. Moreover, some folks aren't fond of buying fractional shares.
For instance, let's say you have $400 (or thereabouts) that you want to invest in dividend stocks. As of Dec. 21, you could buy the following:
- Two shares of American Water = $363.
- One share of American Water + one share of IIPR = $425.
More-conservative investors should go with the first option.
American Water Works
American Water Works provides regulated and market-based drinking water and wastewater services to about 14 million people in 25 states. It will have regulated operations in 15 states once it completes the sale of its New York State business.
The company's status as the largest and the most geographically diverse publicly traded U.S. water and wastewater utility makes it best positioned to continue to capitalize on the industry's ongoing consolidation. It should also experience rising demand for water as climate change drives up average temperatures.
American Water has raised its dividend every year since it went public in 2008. Management has targeted earnings per share to grow at an average annual rate of 7% to 9% from 2022 to 2026. The company's dividend should also increase at the same pace.
Innovative Industrial Properties
Innovative Industrial Properties, a real estate investment trust (REIT), is a rarity in the cannabis group in that it's profitable and pays a dividend. It's probably the least risky way investors can get exposure to the fast-growing U.S. marijuana market.
IIP, as the company is known, primarily buys industrial facilities for growing and processing cannabis (though it will also acquire dispensaries) in U.S. states where medical marijuana is legal. It leases them to state-licensed operators. As of its early November release of third-quarter results, the company owned 76 properties in 19 states, which were 100% leased with a weighted-average remaining lease term of about 16.7 years. In addition to being long term, leases are triple-net (tenants pay all major variable costs) with built-in annual rent increases, which gives the company a predictable income stream.
The fact that IIP is organized as a REIT means that each year it must pay out at least 90% of its income as dividends to shareholders in return for its special tax treatment.
