Long-term wealth creation is strong with dividend stocks. Over the past 50 years, the average S&P 500 dividend stock has returned 9.2% annually, surpassing an equal-weighted index's 7.7%. Dividend growers and initiators have the strongest returns at 10.2%.
NextEra Energy (NYSE: NEE) and Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP) stand out for dividend growth. That makes them fantastic stocks to buy and hold for a lifetime of escalating income.
Strong dividend growth stock NextEra Energy has increasing dividends for 30 years. Over the previous decade, the utility's payment has grown at an above-average 11% CAGR. This has helped it earn 13.1% annually over the past decade. It should have enough gasoline to keep raising its 3.3% payment. At that pace, a $1,000 investment might generate $33 and growing annual income.
The utility expanded its growth prospects by changing its dividend policy early this year. It predicts above-average dividend growth of 10% through 2026. Two things power that plan. The dividend payout ratio was 59% at the end of 2023, considerably below its peer average of 65%. Another driver is significant earnings growth. Through 2026, NextEra Energy estimates adjusted EPS to grow 6% to 8% and operating cash flow to expand at or above that range.
The company's long-term growth prospects are good too. U.S. renewable energy consumption is expected to climb 13% annually through the decade. That suggests the country will add 375-450 gigawatts of renewable energy capacity in the next six years, compared to 235 GW in the prior 30.
That would be a fraction of the capacity needed to decarbonize the economy by 2050. NextEra Energy, the renewables leader, can seize this chance. It should have enough authority to keep raising its dividend, which might boost total returns.
With a focus on three megatrends, Brookfield Infrastructure has consistently increased its dividend. Early this year, the global infrastructure provider increased its payment for the 15th year. Since its 2009 founding, its dividend has climbed 10% year. Over the past decade, that has fueled an 11.7% return.
Over time, the corporation plans to raise its 4.7% dividend by 5% to 9%. This is due to its reliable cash flow, prudent payout ratio, and strong growth drivers. Only 60% to 70% of its funds from operations (FFO) are paid out, and 90% are regulated or contracted.
Deglobalization, digitization, and decarbonization are three long-term global megatrends Brookfield Infrastructure hopes to benefit on. Last year, the corporation invested over $2 billion in its transport (deglobalization) and data (digitalization) areas, which should boost revenue in 2024 and beyond. It's also actively investing in organic expansion across those three trends. A U.S. semiconductor manufacturing complex and global data center construction projects are notable investments.
Over time, acquisitions, expansion initiatives, and other organic growth drivers will produce 10%+ FFO per share growth, the business estimates. Brookfield should be able to increase its dividend for decades due to its focus on long-term trends. That rising dividend could boost Brookfield's total returns.
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