Dividend-paying stocks have historically outperformed the rest by a wide margin, with the cream of the crop being higher-yielding stocks that consistently increase their dividends. This elite group has outperformed stocks that pay lower dividends and those that pay no dividends by an average of 3% annually each decade between 1972 and 2012, according to a study by Ned Davis Research.
Given that data, it would make sense for investors to uncover as many companies that have the fuel to grow their higher-yielding dividends in the coming years as possible. Three lesser-known names that you won't want to miss are NextEra Energy Partners (NEP -0.56%), Brookfield Property Partners (BPY), and EQT Midstream Partners (EQM).
This trio of dividend stocks will be sending their investors lots of cash in the coming years. Image source: Getty Images.
Generating reliable income growth
NextEra Energy Partners operates wind farms, solar facilities, and natural gas pipelines that produce stable cash flows backed by long-term contracts. That steady income supports the company's ability to pay a generous 4.1%-yielding dividend. What's more, the company's cash flow covered that payout by a comfortable 1.2 times last year.
NextEra Energy Partners currently expects to increase its already high-yielding payout at a brisk pace over the next several years, aiming for 12% to 15% annual growth through 2022. Several factors could power the company's plan, including acquiring clean-energy assets from its parent,NextEra Energy (NEE 0.78%), organically expanding its natural gas pipelines, or making third-party acquisitions. Even the existing dropdown portfolio of NextEra Energy alone could power the company's current dividend growth strategy. That clearly visible growth leads NextEra Energy Partners to believe it can deliver a total annual return of roughly 16% to 19% annually through at least 2022 -- which could translate to market-smashing returns for investors.
Being a landlord without the hassle
Brookfield Property Partners owns a diversified portfolio of real estate assets, including some of the top office and retail locations in the world. The company has secured long-term lease agreements for space in these properties that provide it with very reliable cash flow to support its 5.7%-yielding distribution to investors. Meanwhile, Brookfield Property Partners only pays out about 80% of its cash flow, retaining the rest to help finance growth projects.
Making growth-focused investments to redevelop older properties and develop new ones is one part of Brookfield's strategy to grow cash flow. The company will also benefit from contractually guaranteed rental increases, and it has an active program to sell mature properties and reinvest the proceeds into higher-returning ones. This three-pronged approach should grow cash flow at an 8% to 11% compound annual rate through 2021, which supports the company's belief that it can increase its lucrative distribution to investors by 5% to 8% per year over that time frame. Brookfield estimates that this strategy should generate total returns of 14% to 19% annually through 2021.
Trading up is one way Brookfield expects to increase the cash it sends to investors each year. Image source: Getty Images.
A pipeline for steady income growth
EQT Midstream Partners operates natural gas pipelines and related infrastructure in the Marcellus and Utica shale regions, with the bulk of its assets underpinned by long-term contracts with its parent,EQT Corp. (EQT 1.20%). Those agreements provide EQT Midstream with predictable cash flow to support its 6.1%-yielding payout.
Already the largest gas producer in the country, EQT expects to grow production at a fast pace in the coming years -- and will need to invest in building out the infrastructure to support this expansion. As things stand right now, EQT Midstream believes its growing cash flow stream from those expansion projects will support 15% to 20% annual distribution growth for the next several years and allow it to maintain a coverage ratio -- that is, distributable cash flow divided by total amount distributed to unitholders -- of at least 1.1. EQT Midstream could increase its payout at an even quicker pace since EQT recently acquired several midstream assets and a large stake in another pipeline company, which it could combine with EQT Midstream. But even without that added boost, EQT Midstream's stand-alone strategy has the potential to fuel total returns of more than 20% annually.
Compounding wealth
This trio of companies collects predictable cash flows from long-term contracts, which enables them to pay high-yielding dividends. However, that current income stream is only the beginning. All three expect to increase their payouts at a healthy clip in the coming years thanks to their clearly visible growth prospects. As a result, these income stocks could provide market-beating returns for investors, which is why it makes sense to at least put them on your watch list and learn more about each one.
Matthew DiLallo owns shares of Brookfield Property Partners. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
FAQs
For example, suppose an investor buys INR 10,000 worth of a stock with a dividend yield of 4% at an INR 100 share price. This investor owns 100 shares that all pay a dividend of INR 4 per share (100 x INR4 = INR 400 total).
What stock pays the highest dividend yield? ›
20 high-dividend stocks
| Company | Dividend Yield |
|---|
| Franklin BSP Realty Trust Inc. (FBRT) | 11.09% |
| Pennymac Mortgage Investment Trust (PMT) | 11.00% |
| International Seaways Inc (INSW) | 10.55% |
| Eagle Bancorp Inc (MD) (EGBN) | 9.11% |
17 more rows6 days ago
3 Magnificent S&P 500 Dividend Stocks Down 30% (or More) to Buy and Hold Forever
- Realty Income is the largest net lease REIT, and it offers a lofty 5.5% dividend yield.
- Franklin Resources has a sticky asset management business and a 5.3% yield.
- Hormel is a protein-focused food maker with a historically high 3.2% yield.
10 Best Dividend Stocks to Buy
- Verizon Communications VZ.
- Johnson & Johnson JNJ.
- Altria Group MO.
- Comcast CMCSA.
- Medtronic MDT.
- Duke Energy DUK.
- PNC Financial Services PNC.
- Kinder Morgan KMI.
What Is a Good Dividend Yield? Yields from 2% to 6% are generally considered to be a good dividend yield, but there are plenty of factors to consider when deciding if a stock's yield makes it a good investment.
What's a good dividend yield stock? ›
Key Takeaways
| Top 10 Dividend Stocks By Forward Dividend Yield |
|---|
| GECC | Great Elm Capital Corp. | 10.15 |
| IIF | Morgan Stanley India Investment Fund | 23.47 |
| XFLT | XAI Octagon Floating Rate & Alternative Income Trust | 7.04 |
| ABR | Arbor Realty Trust | 12.95 |
7 more rowsAltria Group Inc. (NYSE:MO), Verizon Communications Inc. (NYSE:VZ), and 3M Company (NYSE:MMM) are some of the best dividend growth stocks to consider as these companies have not only maintained impressive records of dividend growth, but they also offer above-average yields.
How many dividend stocks should I own? ›
There is no hard and fast rule for how many dividend stocks to start a portfolio, but a good starting point is to aim for a minimum of 10. This will give you a good mix of different companies and sectors and help to diversify your risk.
What are the top 5 dividend stocks to buy? ›
15 Best Dividend Stocks to Buy for 2024
| Stock | Dividend yield |
|---|
| First American Financial Corp. (FAF) | 3.8% |
| Pfizer Inc. (PFE) | 6.6% |
| Coca-Cola Co. (KO) | 3.3% |
| Johnson & Johnson (JNJ) | 3.4% |
11 more rowsApr 19, 2024
Over time, the cash flow generated by those dividend payments can supplement your Social Security and pension income. Perhaps, it can even provide all the money you need to maintain your preretirement lifestyle. It is possible to live off dividends if you do a little planning.
So, despite the market's meteoric rise over the last year, new investors still have much to gain from AI. The "Magnificent Seven" stocks of the tech world -- Apple, Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Amazon, Meta Platforms, Microsoft, Nvidia (NASDAQ: NVDA), and Tesla -- are a great place to start.
How long should you hold dividend stocks? ›
If you buy a stock one day before the ex-dividend, you will get the dividend. If you buy on the ex-dividend date or any day after, you won't get the dividend. Conversely, if you want to sell a stock and still get a dividend that has been declared, you need to hang onto it until the ex-dividend day.
What 7 dividend stocks to buy as bond yields fall? ›
The screen returned seven names that look promising: Colgate Palmolive, Amgen, Philip Morris International, Consolidated Edison, Hershey, Coca-Cola, and AbbVie. We like Colgate and Amgen the best. Colgate stock has a forward one-year dividend yield of about 3.5%.
Is agnc dividend safe? ›
Is AGNC's 15% dividend safe in 2024? The answer is likely yes, but that doesn't make this stock an attractive buy for long-term investors.
What is the downside to dividend stocks? ›
Dividend-paying stocks have the potential for income through dividends and capital appreciation, but they come with higher volatility and market risk. The choice between the two depends on your risk tolerance, investment goals, and time horizon.
What does 5% dividend yield mean? ›
This number tells you what you can expect in future income from a stock based on the price you could buy it for today, assuming the dividend remains unchanged. For example, if a stock trades for $100 per share today and the company's annualized dividend is $5 per share, the dividend yield is 5%.
Are dividends part of the 4% rule? ›
The answer is yes. For example, if you plan to withdraw $40,000 in a given year and you will receive $15,000 in dividends or capital gains distributions in cash, then you would draw only $25,000 from your nest egg, so that the combination of dividends, distributions and the withdrawal gets you to your $40,000 target.
What does a 5% stock dividend mean? ›
A stock dividend is a payment to shareholders that consists of additional shares rather than cash. The distributions are paid in fractions per existing share. For example, if a company issues a stock dividend of 5%, it will pay 0.05 shares for every share owned by a shareholder.
What does a dividend of 3% mean? ›
Companies issue stock dividends typically in the form of a certain percentage per share. For example, a company may issue a stock dividend of 3%, meaning that someone with 100 shares would receive three more shares.
