Key Points
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NextEra Energy has grown its dividend at a 10% compound annual rate over the past 20 years.
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Realty Income has increased its dividend for more than 30 consecutive years.
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Johnson & Johnson has delivered more than six decades of dividend growth.
Dividend growers have been high-performing investments over the long term. The typical dividend growth stock in the S&P 500 has delivered an average annualized total return of 10.2% over the past 50 years, according to data from Hartford Funds and Ned Davis Research. They have outperformed companies with no change in their dividend policy (6.8% return) and dividend non-payers (4.3%). To put the returns of dividend growth stocks into perspective, a $30,000 investment would be worth just over $1 million in about 36 years at a 10.2% annualized rate of return.
Several companies have exceptional records of increasing their dividends and growing shareholder value over multiple decades, including NextEra Energy (NYSE: NEE), Realty Income (NYSE: O), and Johnson & Johnson (NYSE: JNJ). Given the historical returns of dividend growth stocks, a $30,000 investment across this trio could be worth $1 million in 36 years.
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Powerful growth ahead
NextEra Energy is a leading electric utility and energy infrastructure development company. It has increased its dividend for more than 30 consecutive years. The energy company has grown its dividend at a 10% compound annual rate over the past two decades, which has helped power a more than 14% average annual total shareholder return during that period.
The power company is in a strong position to continue growing its payout in the future. It operates the country’s largest electricity utility in Florida, which benefits from above-average population and economic growth rates, trends that should continue in the coming decades. Additionally, NextEra Energy is a leader in developing clean energy infrastructure, including gas pipelines, electricity transmission lines, and clean power generating capacity. That puts it in a strong position to capitalize on the coming surge in power demand.
NextEra Energy currently expects to grow its adjusted earnings per share at a rate of more than 8% annually over the next decade. The company currently plans to deliver a 10% dividend increase in 2026 and grow its payout at a 6% compound annual rate through at least 2028, starting from next year’s level. Given the expected long-term growth of electricity demand, NextEra should have plenty of power to continue increasing its 2.8%-yielding dividend in the coming decades.
A long growth runway
Realty Income is a real estate investment trust (REIT) with a long record of increasing its dividend. The company has raised its payment every year since its initial public market listing in 1994, growing it at a 4.2% compound annual rate during that time frame. That has helped the landlord deliver a 13.7% average annualized total return since it went public.
The REIT invests in a diversified portfolio of properties secured by long-term net leases with many of the world’s leading companies. This portfolio produces very durable rental income. Realty Income pays out a conservative percentage of its stable cash flow in dividends, enabling it to retain a meaningful amount of cash each year to fund new investments. It also has one of the 10 best balance sheets in the REIT sector.
Realty Income’s financial flexibility enables it to continue investing in income-generating real estate. The company invests billions of dollars each year. It has a massive investment opportunity given the estimated $14 trillion global net lease market. That gives the REIT plenty of room to continue expanding its portfolio to grow its 5.7%-yielding monthly dividend.
A very healthy dividend growth stock
Johnson & Johnson is a world-class dividend growth stock. The healthcare giant has increased its dividend payment for 63 consecutive years. That qualifies it as an elite Dividend King, a company with 50 or more years of annual dividend raises. The company’s growing dividend has helped it deliver a 10.5% annualized total return over the past 30 years.
The company has one of the world’s healthiest financial profiles. Johnson & Johnson is one of only two companies in the world with a pristine AAA bond rating. It generates significant free cash flow ($14 billion through the third quarter), which easily covers its dividend outlay ($9.3 billion during that period).
Johnson & Johnson produces considerable free cash flow even though it’s one of the world’s top investors in research and development ($10.4 billion through the third quarter). The company also uses its financial flexibility to make acquisitions. It recently closed its $3.1 billion acquisition of Halda Therapeutics, which has a novel platform to revolutionize cancer treatment. Johnson & Johnson’s investments should enable it to grow its revenue and earnings at healthy rates, supporting continued increases in its 2.5%-yielding dividend.
Elite dividend growth stocks
NextEra Energy, Realty Income, and Johnson & Johnson have multi-decade records of growing their dividends and delivering double-digit annual total returns. They’re in strong positions to continue those trends in the future. That makes them ideal dividend growth stocks to buy for those seeking to steadily build a million-dollar portfolio.
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Matt DiLallo has positions in Johnson & Johnson, NextEra Energy, and Realty Income. The Motley Fool has positions in and recommends NextEra Energy and Realty Income. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.