Dividend stocks can make great long-term investments. They've outperformed nonpayers by more than 2-to-1 over the past 50 years, with a 9.2% average annual return compared with 4.3%, according to data from Hartford Funds and Ned Davis Research. The best returns have come from dividend growers and initiators, with a 10.2% return.
Given that data, investors should consider boosting their allocations to top dividend growth stocks. Here are 10 to consider doubling up on right now, or adding to your portfolio if you don't already own them.
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Alphabet
Technology titan Alphabet (GOOG 1.09%) (GOOGL 1.15%) might not seem like an appealing dividend stock at first glance, given its paltry 0.5% yield. However, the company currently trades at a low valuation. Meanwhile, it only started paying dividends last year. It has already raised its payout by 5% earlier this year. With a cash-rich balance sheet and a business that generates lots of cash, Alphabet should have no trouble growing its business in the future. The company has lots of growth drivers, including its emerging AI platform built around Google Gemini. AI is already driving accelerated growth across its business, which could continue for years to come.
American Water Works
American Water Works (AWK -1.18%) is a leading water utility. The company generates stable cash flow by providing water, wastewater, and other services to customers under government-regulated rate structures and long-term, fixed-rate contracts. That enables it to produce durable cash flow to pay dividends.
The water company's payout currently yields 2.3%, which is almost double the S&P 500's dividend yield of around 1.2%. American Water Works pays out 55% to 60% of its durable earnings in dividends. It retains the rest to invest in expanding its existing water utilities and buying new ones. These growth investments should increase its earnings per share by 7% to 9% annually. American Water Works expects to grow its dividend at the same rate as its earnings rise.
Broadcom
Semiconductor and software giant Broadcom (AVGO 1.98%) also has a rather lackluster dividend yield of 0.9%. However, the company has a stellar record of increasing its payout. It has raised its payout in all fourteen years since it initiated a dividend in its 2011 fiscal year, including hiking it by 11% last year.
Broadcom should have no trouble increasing its dividend in the future. The company is growing fast, driven by robust demand for its AI semiconductors. AI revenue grew a staggering 220% last year to $12.2 billion. With AI still in the early stages of deployment, Broadcom has a long growth runway ahead.
Brookfield Renewable
Renewable energy juggernaut Brookfield Renewable (BEPC 3.33%) (BEP 4.85%) currently has a more than 4.5% dividend yield. The company backs its high-yielding payout with very stable and steadily growing cash flow.
Brookfield sells about 90% of the power it produces under long-term, fixed-rate power purchase agreements, which link 70% of its revenue to inflation. In addition to inflation indexation, Brookfield's growth drivers include margin enhancement activities, development projects, and acquisitions. The company expects this quartet will boost its funds from operations (FFO) per share by more than 10% annually. That easily supports Brookfield's plans to increase its dividend by 5% to 9% per year. The company has grown its payout at a 6% compound annual rate since 2001.
Realty Income
Realty Income (O -1.79%) has a more than 5.5% dividend yield. The real estate investment trust (REIT) backs its high-yielding payout with very stable rental income. It primarily invests in properties secured by long-term net leases, which require tenants to cover building insurance, routine maintenance, and real estate taxes.
The REIT has an incredible record of increasing its dividend. It has raised its payment 131 times since its public market listing three decades ago, including for 111 quarters in a row. Realty Income has grown its payout at a 4.2% compound annual rate during that period, primarily by investing in additional income-producing real estate. With a strong financial profile, the REIT should have no trouble continuing to deliver a steadily rising income stream to shareholders.
PepsiCo
PepsiCo (PEP -1.09%) has a more than 4% dividend yield. The beverage and snacks giant has an amazing record of increasing its payout. It raised its payment by 5% earlier this year, extending its growth streak to 53 straight years. That kept PepsiCo in the elite group of Dividend Kings, companies with 50 or more years of annual dividend increases.
The company invests heavily to organically expand its business. It expects its investments to deliver 4% to 6% annual revenue growth and high-single-digit earnings-per-share growth over the long term. PepsiCo also uses its strong balance sheet to make acquisitions that accelerate its growth. Those drivers should enable it to continue increasing its dividend.
Prologis
Leading industrial REIT Prologis (PLD -0.35%) has a dividend yield approaching 4%. The company has grown its dividend at a 13% compound annual rate over the past five years. That's more than double the pace of other REITs, at 6%, and the S&P 500, at 5%.
Prologis is in a strong position to continue increasing its dividend. Demand for warehouse space is strong while new supplies will likely remain limited, which should support steady rent growth. The company also has a strong balance sheet, enabling it to invest in development projects and acquisitions.
Johnson & Johnson
Healthcare giant Johnson & Johnson (JNJ -1.03%) has a dividend yield of more than 3%. The company raised its payout by 4.8% earlier this year, extending its growth streak to an impressive 63 straight years.
Johnson & Johnson backs its dividend with one of the healthiest financial profiles in the world. It's one of only two companies with a pristine AAA bond rating. The company generates about $20 billion in free cash flow annually, more than enough to cover its $11.8 billion dividend outlay. It also invests heavily in research and development, as well as making acquisitions to enhance its pipeline and current product offerings.
NextEra Energy
NextEra Energy (NEE -0.28%) has a 3% dividend yield. The utility has grown its payout at a brisk 10% compound annual rate over the past 20 years. It plans to deliver around 10% annual dividend growth through at least next year.
Powering the company's rapidly rising dividend is its heavy investment in renewable energy and in expanding its electric utility in Florida. NextEra Energy sees tremendous growth potential ahead, fueled by surging demand for power from catalysts like AI data centers. That should enable the company to continue growing its earnings at a healthy rate, supporting steady dividend increases.
Visa
Visa (V -0.74%) has a rather low dividend yield of 0.7%. However, the credit card giant is growing its payout briskly. It has raised its payout annually for over a decade and a half, growing it at a more than 17% compound annual rate over the past 10 years.
The credit card company generates massive and growing free cash flow. It has produced almost $9.5 billion in free cash flow over the last 12 months. Visa is returning that money to investors via share repurchases and dividends. It's also investing in expanding its business, which is growing at a double-digit annual clip.
Great dividend stocks to buy
These companies do a great job of paying dividends. They have excellent records of increasing their payouts, which should continue. That should enable them to generate strong total returns over the long term.
