The smartest dividend aristocrats to buy with $500 right now

VScompanies that regularly increase their dividends have historically outperformed their stingier counterparts, so investors should consider adding dividend-growing stocks to their portfolios. The cream of the crop are the Dividend Aristocrats, companies that have had annual dividend growth for at least 25 consecutive years.

Two of my favorite dividend aristocrats are Real estate income (NYSE:O) and NextEra Energy (NYSE:NEE). I recently invested $500 more in these two stocks; here’s why I think they stand out as wise investments.

It’s all in the name

Realty Income has an incredible track record of dividend growth. The real estate investment trust (REIT) has increased its monthly dividend payment 115 times since its IPO in 1994, with the last 98 increases occurring in consecutive quarters. The REIT has increased its dividend for 27 consecutive years, growing it at a compound annual rate of 4.4%. This has helped it produce an average annual compound total return of 15.3% since its IPO.

This steadily growing dividend has enriched long-term investors. For example, someone who invested $100 in real estate income in 1994 would have seen that amount grow to over $4,000 today, when adding together the cumulative dividend payments and stock price appreciation. In the last decade alone, investors would have received nearly 80% of their initial investment in dividends, along with a near doubling of the stock price.

Realty Income should be able to continue to build shareholder value in the future. The REIT is focused on acquiring durable real estate supported by long-term leases with high-quality tenants, in areas resilient to e-commerce disruption and economic downturns. It also has a reasonable dividend payout ratio for a REIT and one of the strongest balance sheets in the industry. This gives it the financial flexibility to continue to acquire income-producing real estate, so it can continue to increase its attractive dividend, which currently yields around 4.5%.

A powerful growth driver

NextEra Energy has also done an exceptional job increasing its dividend and shareholder value over the years. The utility has grown its adjusted earnings per share at a compound annual rate of 8.4% since 2006. Meanwhile, it has increased its dividend at a compound annual rate of 9.8% over that period. Even with this higher dividend growth rate, NextEra has one of the lowest dividend payout ratios in the utilities industry. Moreover, despite a lower payout ratio, NextEra still offers an attractive dividend yield of 2.2%, well above the S&P500 is 1.4% on average these days.

This steady growth in earnings and dividends has created a lot of value for investors over the years. The company has produced a total return of over 800% over the past 15 years. That would have taken an investment from $100 in 2007 to over $800 today.

NextEra Energy expects to continue increasing its earnings and dividend in the coming years. It sees adjusted earnings per share growing at or near the upper end of its target range of 6% to 8% through 2025. Between that and its conservative dividend payout ratio, the utility plans to increase its dividend of around 10% per year until at least 2024. The company’s growth is fueled by its continued investment in building one of the largest renewable energy companies in the world.

Elite Dividend Growth Stocks

Realty Income and NextEra Energy have created enormous wealth for their shareholders over the years by steadily increasing their dividends, allowing a small investment to go a long way. This makes them smart stocks to buy even if you don’t have a lot of money to invest right now.

10 stocks we like better than NextEra Energy
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Matthew DiLallo holds positions in NextEra Energy and Realty Income. The Motley Fool fills positions and recommends NextEra Energy. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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