Top Picks for Divide-Yielding Shares to Invest in Right Away
Investing in dividend stocks can offer substantial long-term benefits. Over the past half-century, the typical dividend stock in the S&P 500 has outperformed non-payers by more than twice as much. Companies that consistently raise their dividends have delivered the best returns.
There's a wealth of excellent dividend growth stocks available now. At the moment, Realty Income (-3.14%) and Brookfield Renewable (with constituents BEP (-3.70%) and BEPC (-4.10%)) are my top picks for investment. They offer impressive dividend yields and promising growth prospects, making them likely to generate appealing overall returns in the coming years.
The fundamentals for strong overall returns
Realty Income boasts an impressive track record of paying dividends. Recently, the real estate investment trust (REIT) announced its 653rd consecutive monthly dividend. It has boosted its payout for 108 consecutive quarters and 127 times since its 1994 public listing, increasing the dividend by a 4.3% compound annual rate. Consequently, the company has reported a 14.1% annualized total return since its IPO 30 years ago.
The REIT currently provides a dividend yield exceeding 5.5%. This is substantially more than the S&P 500's dividend yield, which hovers around 1.5%.
Realty Income seems capable of continuing to boost its dividend in the future. The firm maintains a conservative dividend payout ratio—75% of its adjusted funds from operations (FFO)—while boasting one of the industry's strongest balance sheets. This financial flexibility enables Realty Income to continue purchasing income-generating real estate.
Historically, Realty Income has managed to increase its adjusted FFO by around 5% annually—through a mix of rent increases, property acquisitions, and REIT mergers. Given the size of the commercial real estate market, Realty Income appears well-positioned to maintain this growth rate in the future. Adding this growth rate to its high dividend yield, Realty Income may deliver total returns of more than 10% each year.
Profitable growth potential
Brookfield Renewable has built a strong reputation for dividend payments. The global renewable energy leader has grown its payout at a 6% compound annual rate over the last two decades. Currently, it yields nearly 5%.
This high-yielding payout is based on a strong foundation. Brookfield's dividend payout ratio has decreased over the years because its FFO has grown faster than the dividend—by a 12% compound annual rate since 2016. The ratio stands at around 77% through the first three quarters of 2023. Furthermore, Brookfield has a robust investment-grade balance sheet with ample liquidity, strengthening the durability of its dividend.
Brookfield anticipates strong future growth. It projects annual FFO per share growth of more than 10% over the subsequent decade. Its progress will become increasingly evident over the next five years and even more so beyond that.
A primary factor in this growth is its extensive pipeline of development projects. The company has 65 gigawatts of projects in its advanced stages. This enables Brookfield to install approximately 10 gigawatts of new capacity each year through 2030. These development projects alone contribute 4% to 6% annually to Brookfield's FFO per share. When considering higher power prices, revenue-enhancing activities, and value-added acquisitions, Brookfield boasts multiple catalysts for double-digit growth.
Brookfield's robust earnings growth rate supports its objective of increasing its high-yielding dividend by around 5% to 9% annually in the future. Add this expanding income stream to its outstanding earnings growth rate, and Brookfield may produce total returns in excess of 15% per year.
To further elaborate on investing in dividend stocks, focusing on the 'finance' aspect, one could say: "Incorporating thorough financial analysis is key when considering which dividend stocks to invest in, ensuring a solid long-term financial strategy."
Delving deeper into the topic of money and investments, a second sentence could be: "A strategic investment plan that includes regular reinvestment of dividends can amplify the power of compounding, contributing significantly to overall wealth growth over time."
