3 of the Best Dividend Growth Stocks to Buy and Hold for Decades
Key Points
The stocks listed here have been increasing their payouts for decades, and a couple are even Dividend Kings.
Over the past five years, they've boosted their dividend payments at high rates.
They all yield more than 2%, which is well above the S&P 500 average.
Dividend stocks can be key to building up a portfolio's balance over the long term, while keeping risk low. And that can be key, because while growth stocks may offer compelling upside, they can also carry significant risks along the way. For investors willing to be patient, investing in dividend-growth stocks can be a much more suitable strategy.
Quality dividend stocks should not only offer good yields but also have strong track records for dividend growth. And it's not just about any increase in the payout -- investors should focus on companies that have made meaningful increases recently.
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Three top dividend stocks that check off all those boxes are Lowe's Companies (NYSE: LOW), NextEra Energy (NYSE: NEE), and American States Water Company (NYSE: AWR). Here's why these can be excellent stocks to build a dividend-focused portfolio around.
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Lowe's
Lowe's is a top home improvement retailer whose robust business makes it an appealing long-term investment. While there may be periods of declining demand due to economic conditions, the business has considerable long-term growth opportunities ahead, driven by population growth and new home construction.
The stock currently pays a dividend that yields 2.4%, which is more than twice the S&P 500 average of 1.1%. The company has an illustrious track record of raising its payouts for more than 50 consecutive years, making it a Dividend King. And Lowe's has been generous with its rate hikes, with its current quarterly dividend of $1.25 being 56% higher than the $0.80 it was paying its shareholders five years earlier. That averages out to a compounded annual growth rate (CAGR) of 9.3%, comfortably above the inflation rate.
This year, the stock is down 10%, but with a terrific business model and it trading at just 18 times its trailing earnings, it can be a solid buy right now.
NextEra Energy
Another top dividend stock is NextEra Energy, which is a leading provider of electricity in the country. Companies such as NextEra, which provide essential services, can be incredibly valuable investments because they benefit from fairly consistent demand over the years and aren't likely to experience significant volatility in their earnings. It's yielding 2.8%.
NextEra has been raising its dividend for decades (although its streak isn't nearly as long as Lowe's), making it another excellent dividend growth stock. Earlier this year, the company announced a generous 10% increase to its payout, in line with the plan it previously outlined to shareholders -- yet another example of the predictability the business offers. Over five years, NextEra has boosted its quarterly payout by roughly 62%, averaging a CAGR of 10.1%.
This year, NextEra's stock is up a solid 11% as investors increasingly seek safe-haven investments, and it's not hard to see why NextEra can be a great option. At 20 times earnings, the stock may look a bit pricey, but for the dividend income and long-term stability it offers, it can still be a good holding.
American States Water Company
The company with the most impressive streak of dividend increases is American States Water -- it's been raising its payout for an incredible 71 consecutive years. Like NextEra, it offers essential services to its customers, which have enabled it to grow steadily over time while increasing its dividend.
In the trailing 12 months, the business generated $679 million in revenue and $209 million in operating profit, for a fairly strong margin of 31%. With those kinds of strong financials, the business is in good shape to grow its profits along with its top line.
Currently, the stock yields 2.3%. And at $0.504, its quarterly dividend has increased by just over 50% in five years, from $0.335, for a CAGR of 8.5%.
As another safe-haven, the stock has rallied an impressive 22% this year. However, investors shouldn't get used to those types of returns, as in five years it's up just over 1%. Historically, this has been a low-volatility stock, with a beta of around just 0.60, indicating that it doesn't move closely with the overall market. But for long-term investors seeking a solid dividend-growth stock, American States Water can be an excellent option.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends NextEra Energy. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.