Dividend stocks have historically produced above-average returns. Since 1973, the average dividend payer in the S&P500 produces an average annual return of 9.2%, according to data from Ned Davis Research and Hartford Funds. This exceeded the average annual total return of 7.7% for an equally weighted company S&P 500 Index. However, it should be noted that dividend producers and originators generated these returns, producing an average annual total return of 10.2%, compared to 6.6% for companies with no change in their dividend policy.
Given this data, companies that are able to increase their dividends should produce superior returns in the future. Three companies with excellent dividend growth histories (and visible growth to come) are Brookfield Infrastructure (BEEP 1.84%) (BIPC 1.30%), Enterprise Product Partners (DEP 0.58%)And Prologue (PLD 2.34%). I would buy this trio of premium dividend payers without hesitation this month.
Many growth drivers
Brookfield Infrastructure gave its investors a 6% raise earlier this year. This marked the 14th consecutive year of increased payout.
The global infrastructure operator has ample power to continue to increase payment. It generates very stable cash flows. About 90% comes from long-term fixed-rate contracts or government-regulated rate structures. Meanwhile, Brookfield pays a conservative portion of its cash flow (60% to 70% of its FFO) through the dividend. This allows it to retain cash to fund expansion projects. The company also has a solid investment rating credit ratingoffering additional financial flexibility.
Brookfield has several growth drivers, including inflation-linked rate increases on its contracts, volume growth as the economy expands, and expansion plans. This trio of engines can organically grow its FFO per share at an annual rate of 6% to 9%. Meanwhile, its capital recycling strategy of selling mature assets and redeploying the proceeds into higher yielding opportunities may further boost its bottom line. These catalysts should allow Brookfield to increase its dividend at an annual rate of 5% to 9% over the long term.
The fuel to keep growing
Enterprise Products Partners has increased its distribution to investors by 5% over the past year. This marked the 24th consecutive year of growth in Master Limited Partnership (MLP) distribution.
Enterprise has enough fuel to continue to increase its distribution in the future. It has one of the strongest financial profiles in the energy midstream, including a low dividend payout ratio and an investment-grade credit rating. This means it has the funding capacity to pay for its distribution while investing in expanding its median footprint.
The company currently has $6.1 billion in major projects under construction that are expected to come into service through 2025. This provides great visibility into future growth. In the meantime, it has the flexibility to make acquisitions as attractive opportunities arise. Last year, Enterprise spent $3.2 billion to buy Navitas Midstream and another $160 million to buy pipelines and related assets.
Huge integrated growth and upside potential
Prologis recently increased its dividend by an additional 10%. THE Industrial REIT has grown its payout at a compound annual rate of 12% over the past five years, significantly outpacing other REITs (6%) and the S&P 500 (5%).
The global warehouse operator is expected to continue increasing its payouts in the future. A big driver is the growth in rents. As the company signs long-term leases with tenants that feature annual rental rate increases, the biggest catalyst is the massive gap between existing lease rental rates and current market rates resulting from the strong growth in demand in recent years. Prologis estimates that it can grow its net operating profit at an annual rate of 8-10% over the next few years as old leases expire, and it is renting out this space at higher market rents. . This outlook assumes no further growth in market rents, which seems unlikely.
Meanwhile, several other factors could allow the company to grow its FFO per share at an even faster rate, including further growth in market rents, development projects and acquisitions. The company has an extensive development pipeline and an extensive land reserve. The REIT also has ample financial leeway to finance new investments. It has A-rated credit and generates significant free cash flow after paying its dividend.
Easy to Buy Dividend Stocks
Brookfield Infrastructure, Enterprise Products Partners and Prologis have seen premium dividend growth over the years which is expected to continue. They should be able to produce above-average total returns in the future. That’s why I would buy any of them without hesitation this month.
Matthew DiLallo holds positions at Brookfield Infrastructure, Brookfield Infrastructure Partners, Enterprise Products Partners and Prologis. The Motley Fool fills positions and recommends Prologis. The Motley Fool recommends Brookfield Infrastructure Partners and Enterprise Products Partners. The Motley Fool has a disclosure policy.