Dividend stocks can be terrific investments that can supply you with a growing stream of passive income. Meanwhile, the best ones offer the potential to earn strong total returns as their growing earnings and dividends steadily push their stock prices higher.
NextEra Energy (NYSE: NEE), Brookfield Infrastructure(NYSE: BIPC)(NYSE: BIP), and Enbridge(NYSE: ENB) stand out to a few Fool.com contributors this April for their ability to pay a growing dividend. They believe investors shouldn't hesitate to buy shares of these top dividend stocks this month.
NextEra Energy is a dividend growth dream
Reuben Gregg Brewer (NextEra Energy): Utility stocks are generally considered slow and boring. Most are, but some are not, which can be both good and bad.
One utility that stands out in a good way is NextEra Energy. It's among the largest utilities in the United States, with a $128 billion market cap.
The really big story, however, is that the company has increased its dividend at a 10% annualized clip over the past decade, and management expects to maintain that pace through at least 2026. That's an incredible dividend growth rate for a utility company. This is an industry where half of that rate is considered impressive.
NextEra Energy achieves this feat by mixing two businesses into one. The core of the company is its regulated utility operation, which is largely composed of Florida Power & Light. Florida has benefited from in-migration, supporting slow and steady growth for NextEra Energy. This is the foundation and makes up around 70% of the company.
The rest of the business is NextEra Energy Resources, the utility's growth platform and one of the largest producers of solar and wind power on the planet. Given the transition away from carbon fuels, there's still a long runway for growth here. At present, management expects to as much as double its clean-energy capacity by 2026.
The one wrinkle is that the roughly 3.3% dividend yield is modest by utility standards. However, it happens to be near the high end of NextEra Energy's yield range over the past decade. That suggests that this is a dividend growth opportunity that has been placed on the sale rack.
Plenty more dividend growth ahead
Matt DiLallo (Brookfield Infrastructure): Brookfield Infrastructure has been a fantastic dividend stock since its inception 15 years ago. The global infrastructure operator has increased its payout every single year, growing it at an impressive 10% compound annual rate. Driving that robust dividend growth has been the even stronger 15% compound annual growth rate of its funds from operations (FFO), powered by organic drivers and acquisitions.
Those growth catalysts remain firmly in play. The company sees a trio of organic growth drivers (inflation-indexed rate increases, volume growth as the global economy expands, and expansion projects) powering 6% to 9% FFO per-share growth in the coming years.
Meanwhile, its capital recycling strategy (selling mature assets to fund new investments) should continue pushing its FFO growth rate into the double digits. Those catalysts easily support Brookfield's plan to increase its already high-yielding dividend (currently 4.5%) by 5% to 9% annually.
Investors get all that growth and income for a bargain price these days. Brookfield Infrastructure ended last year with an annualized FFO run rate of $3.16 per share. With shares recently trading around $37 apiece, Brookfield sells for less than 12 times FFO, which is dirt cheap. For comparison, the S&P 500 trades at 23.5 times earnings, while the Nasdaq 100 fetches more than 31 times earnings.
Given Brookfield Infrastructure's high yield, strong growth rate, and cheap valuation, dividend investors shouldn't hesitate to buy shares of the company this April. Over the long term, it could easily deliver strong double-digit annual total returns.
Enbridge boasts strong dividend growth prospects
Neha Chamaria(Enbridge): Enbridge recently released its financial outlook for the near term. Unsurprisingly, dividend growth continues to be an important goal for management, and the energy infrastructure company is confident of extending its 29-year track record of annual dividend increases "comfortably."
CEO Greg Ebel believes the "visibility, duration, and low-risk profile" of Enbridge's growth, which underpins its growing dividend, "is stronger than ever" now. To put some numbers to that, Enbridge expects to grow its earnings per share by 4% to 6% and distributable cash flow (DCF) per share by around 3% through 2026, driven primarily by acquisitions and new investments in infrastructure. For example, Enbridge is on track to acquire three natural gas utilities from Dominion Energy in a bid to create the largest gas utility business in North America in terms of gas delivery volume.
That DCF growth should support steady dividend growth year after year. After paying out 34 billion Canadian dollars in dividends in the past five years, Enbridge expects to pay more than CA$40 billion in dividends over the next five years while maintaining a comfortable DCF payout ratio of 60% to 70%.
Here's what that means for investors who buy Enbridge stock this April: They can expect to earn regular dividends every quarter, earn bigger annualized dividends every year, and enjoy a high yield of 7.5% right now.
Should you invest $1,000 in NextEra Energy right now?
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Matt DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, Enbridge, and NextEra Energy. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in Dominion Energy and Enbridge. The Motley Fool has positions in and recommends Enbridge and NextEra Energy. The Motley Fool recommends Brookfield Infrastructure Partners and Dominion Energy. The Motley Fool has a disclosure policy.
