This article was written by Tom from Dividends Diversify. His personal finance website was founded in 2017. The site focuses on building wealth one dividend at a time.
US dividend growth stocks have a lot to offer investors. I view them as a triple play when it comes to building wealth. That triple play includes:
- Current income
- Consistent income growth
- Share price appreciation
This 3-part combination is an excellent wealth-building trio, in my opinion. Let me explain.
First of all, current dividend income can be used for funding your living expenses or for reinvesting back into your stock portfolio. Secondly, consistent income growth is an excellent hedge against inflation. Finally, dividend growth normally comes from higher earnings. And, higher earnings drive share price appreciation over the long run.
US dividend stocks to look at today
So, let’s take a look at 3 of my favorite US dividend growth stocks.
- NextEra Energy
Many US dividend stocks are clustered in specific sectors of the stock market. However, it is still possible to build a portfolio of US dividend stocks that offers plenty of diversification. So, each stock in this review was intentionally selected from 3 distinctly different industries.
As Canadian investors, we have to make sure we’re paying as little fees as possible. Investors who are new and are just learning how to buy stocks may end up paying higher fees to purchase U.S. stocks unknowingly. That is why it’s crucial you use a strategy like Norbert’s Gambit to exchange your currencies.
Clorox (NYSE: CLX)
The Clorox Company is a leading manufacturer and marketer of consumer products. Clorox markets some very trusted and recognized brands that include:
- Clorox bleach and cleaning products
- Pine-Sol cleaners
- Liquid Plumber clog removers
- Kingsford Charcoal
- Hidden Valley dressings and sauces
- Glad bags, wraps, and containers
- Burt’s Bees personal care products
- Brita water filters
- Poett home care products
- Fresh Step cat litter
- RenewLife digestive health products
- Rainbow Light, Natural Vitality, and Neocell dietary supplements
Selling branded consumer products is a tough business these days. It is a highly competitive environment. The competition comes from different angles including other consumer brand companies, private labels, and store brands.
But Clorox is still able to shine. Why? Because more than 80 percent of the company’s sales are generated from brands that hold the number 1 or number 2 market share positions in their categories.
Clorox sticks to specific niches. And, they seek to dominate in those niches.
Clorox dividend facts and figures:
- Recent dividend yield – 2.8%
- 7-year average annual dividend growth rate – 7%
- Dividend payout ratio – 65%
- Consecutive years of dividend increases – 42
NextEra Energy (NYSE: NEE)
NextEra Energy is one of the largest electric power and energy infrastructure companies in North America. The company is also a leader in the renewable energy industry.
NextEra operates two primary businesses, Florida Power & Light and NextEra Energy Resources.
Florida Power & Light is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. In contrast, NextEra Energy Resources produces renewable energy from the wind and sun.
What I like about NextEra is that it is not your typical high dividend yield, high payout ratio, slow growth utility stock. Don’t get me wrong, there is no issue with investing in utility stocks of that kind. I certainly own a few of them for the higher income they provide. On the other hand, NextEra breaks that mold.
The company has used the stable cash flows from its regulated Florida power utility to help finance its investments in renewable energy sources. As a result, NextEra has become the largest producer of wind and solar power in the world.
Renewables represent 30% of NextEra’s business, based on revenues. Rapid growth in this area is helping to support sizable dividend increases unmatched by most utilities.
NextEra dividend facts and figures:
- Recent dividend yield – 2.1%
- 7-year average annual dividend growth rate – 11%
- Dividend payout ratio – 60%
- Consecutive years of dividend increases – 25
I expect another double-digit percentage dividend increase to be announced soon. And note that the 2019 dividend increase marks the 25th consecutive year the NEE stock dividend has been increased by management.
This dividend increase streak makes NextEra a newly crowned Dividend Aristocrat. Dividend Aristocrats have increased their dividends annually for at least 25 years (here in Canada, to become a Canadian Dividend Aristocrat the streak required is 5 years)
Sysco (NYSE: SYY)
Sysco is a global leader in selling, marketing and distributing food and non-food products. Their primary customers are restaurants, healthcare facilities, educational institutions, and lodging establishments.
Sysco plays a big role in the food we eat outside of our homes. To do this, the company is comprised of four business groups:
US Broadline is the largest. It distributes a full line of food and non-food products to independent restaurants, chain restaurants, healthcare institutions and educational facilities across the US.
Specialty meets the needs of customers looking for unique and differentiated produce, meat or seafood products.
International supports customer’s food and non-food product needs in 90 different countries around the world outside of the US.
Sygma focuses on the logistics of working closely with centralized corporate purchasing systems of large national restaurant chains.
Sysco dividend statistics:
- Recent dividend yield – 2.2%
- 7-year average annual dividend growth rate – 6.2%
- Dividend payout ratio – 45%
- Consecutive years of dividend increases – 51
First of all, don’t let the 6%, 7-year dividend growth rate fool you. Dividend growth has accelerated in the last couple of years as earnings have grown and the dividend payout ratio has decreased. Sysco’s most recent dividend increase was more than 15%.
Secondly, Sysco’s latest dividend increase represents the 51st consecutive year management has increased the dividend.
Only a handful of companies have achieved this type of dividend increase record. Companies that achieve 50 or more consecutive years of dividend increases are known as Dividend Kings.
Wrap Up – US Dividend Stocks for Income & Growth
Each of the 3 companies highlighted has a solid track record of dividend growth supported by moderate dividend payout ratios.
- NextEra Energy
All 3 operate durable business models that provide essential services and products that never go out of style. These characteristics provide a foundation for dividend safety and future dividend increases to build your wealth in the long run.
On the other hand, quality US dividend-paying stocks are rarely found at attractive valuations. So, I find it best to add to my positions in smaller increments over time. Also, look for opportunities when the price pulls back. This approach takes advantage of averaging into the position over time. And not putting all available investment dollars into one large purchase.