Dividend stocks can be fantastic long-term investments. Over the past 50 years, the average dividend stock in the S&P500 has outperformed non-payers by more than 2 to 1. The best returns come from companies that consistently increase their dividends.
There is a long list of great dividend growth stocks. Real estate income (NYSE:O) And Brookfield Renewable (NYSE:BEP)(NYSE: BEPC) currently tops my list as the best to buy right now. They offer high dividend yields and healthy growth prospects. These factors should enable them to achieve attractive total returns in the coming years.
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Realty Income has a phenomenal track record of paying dividends. The real estate investment trust (REIT) recently declared its 653rd consecutive monthly dividend. The REIT has increased its payment for 108 consecutive quarters And 127 times since going public in 1994, growing its payout at a compound annual rate of 4.3%. That rising dividend has contributed to the company’s 14.1% annualized return total return since its stock exchange listing thirty years ago.
The REIT currently offers a dividend yield of over 5.5%. That is several times higher than the S&P 500, which has a dividend yield of less than 1.5%.
Realty Income should be able to continue increasing its dividend going forward. It has a conservative dividend payout ratio for a REIT of 75% of adjusted funds from operations (FFO). Meanwhile, it has one of the strongest balance sheets in the sector. That gives the country enough financial flexibility to continue acquiring income-producing real estate.
Historically, adjusted FFO has grown at approximately 5% per share a combination of rental growth, real estate acquisitions and corporate mergers with other REITs. Realty Income is well-positioned to continue growing at about the same rate going forward, given the sheer size of the commercial real estate market. Add that growth rate to the high dividend yield and Realty Income could deliver a total return of more than 10% per year.
Brookfield Renewable has built a strong track record of paying dividends. The leading global renewable energy The producer has increased its payout at a compound annual rate of 6% over the past twenty years. Currently it yields almost 5%.
That high-yield payout is enabled a very sturdy one foundation. The company’s dividend payout ratio has fallen over the years because it has grown its FFO much faster than its dividend, at a compound annual rate of 12% since 2016. That ratio averaged about 77% through the first nine months of this year. In the meantime, Brookfield has done just that a strong investment grade balance sheet with a lot of liquidity, which further improves the sustainability of the dividend.
The company expects to continue to experience strong growth in the future. The company believes it can grow its FFO per share by more than 10% annually over the next decade. Its growth is very visible and secured over the next five years, and increasingly visible and secured thereafter.
A important factor is the enormous backlog in development projects. The company has 65 gigawatts of projects in its advanced pipeline. That supports the view that it can commission around 10 GW of new capacity annually until 2030. Development projects alone should add 4% to 6% to FFO per share each year. Add to that higher energy prices, margin improvement activities and positive acquisitions, and Brookfield has multiple drivers to deliver double-digit growth.
The company’s robust earnings growth supports its plan to increase its high-yield dividend by approximately 5% to 9% annually in the future. Add that growing revenue stream to strong earnings growth, and Brookfield could generate total returns of more than 15% per year.
Realty Income and Brookfield Renewable have done so Great records of the growth of their dividends. Thanks to them strong financially profiles and growth prospects, they should continue to increase their high-yield payouts in the future. That combination of income and growth should allow them to generate double-digit total annual returns. This strong return potential of such great companies makes them stand out as great dividend stocks to buy now.
Consider the following before purchasing shares in Realty Income:
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners and Realty Income. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
Here Are My Top 2 Dividend Stocks to Buy Now was originally published by The Motley Fool
