Dividend growth investing is a fantastic long-term investment strategy. It radically changed my life and allowed me to retire in my early 30s. But one of the most powerful aspects of this strategy is right in its name.
Dividend growth.
A lot of high-quality dividend growth stocks don’t offer super high yields.
Instead, it’s all about letting those dividend increases slowly compound over time, which eventually turns your passive income into a runaway snowball of dividend income you can’t reasonably spend.
But what if you don’t have a decade or two to let the compounding process play out? What if you’re at retirement age, or close to it, and need income now? Or, what if you’re a younger investor who wants to amplify the overall yield of your portfolio?
Well, that’s what today’s article is all about.
I’m going to tell you about three dividend growth stocks that offer big, strong dividends.
They’re big because we’re talking about yields that are more than four times higher than the S&P 500’s 1.5% yield. And they’re strong because they’re backed by the necessary cash flows.
The last thing you’d want is to chase after a high yield and then see that dividend cut and the investment value drop like a rock.
Also, these dividends are still growing. Not as fast as many lower-yielding stocks, sure.
But there is underlying dividend growth there to protect your purchasing power, which you’ll need as inflation slowly tries to eat away at it.
Want to know which three stocks I’m talking about?
Let’s dig in.
Dividend Growth Stock #1: AT&T (T)
The first stock I want to bring to your attention is AT&T (T). AT&T’s stock yields a massive 7% right now.
If that kind of yield doesn’t get the bills paid, you might have too many bills. And it isn’t just yield you get from the telecom and media conglomerate. This dividend is also growing.
AT&T is a Dividend Aristocrat with 36 consecutive years of dividend raises. The 10-year dividend growth rate is only 2.2%, so there’s not a ton of growth here. But that’s the trade-off with a 7% yield.
Also, this dividend is safe and easily covered by cash flow.
The company took in over $27 billion in free cash flow last year, and the dividend only sucked up 55% of it. So this is a stock where you can count on that big dividend to keep coming.
Dividend Growth Stock #2: Enbridge (ENB)
The next stock is Enbridge (ENB). Enbridge is yet another 7% yielder. Cash, baby.
This Canadian energy company moves oil and gas through its pipelines, but it also pipelines big dividends straight into its shareholders’ brokerage accounts.
Yet again, I’m not talking about just yield here. You get growth, too.
Enbridge has increased its dividend for 25 consecutive years. And with a 10-year dividend growth rate of 11.3%. this is a pretty compelling combination of yield and growth.
While a lot of energy companies have to worry about volatile commodity prices, Enbridge basically operates a tool booth business that collects fees for energy transportation.
This keeps Enbridge’s dividend safer than a lot of other energy plays. Distributable cash flow per share easily covers the dividend. Keep in mind, holding this stock in a US taxable brokerage account will trigger a dividend tax withholding from Canada, which you’ll have to claim back at tax time.
Dividend Growth Stock #3: Altria Group (MO)
Last, but certainly not least, we have Altria Group (MO). You want another stock with a 7% yield? Well, here you go.
If you have no reservations about investing in a tobacco company, this stock is great for investors who want income now. MO may as well mean mo’ money.
Again, it’s not just a 7% yield, which is fantastic in and of itself. No, we also get growth here.
Altria has increased its dividend for 51 consecutive years, which puts it in rare company. And the 10-year dividend growth rate is an impressive 9.1%. However, more recent dividend raises have been small.
Also, the company’s EPS easily covers the dividend.
Altria is guiding for adjusted EPS of between $4.49 and $4.62 for this fiscal year, which clearly exceeds the $3.44 dividend. This stock can pave your portfolio with one of the biggest, strongest dividends out there.
All three of these stocks offer a safe, growing 7% yield. And with all three of them being in very different industries, you almost have a miniature portfolio here. If you’re an investor who needs income now, do consider these three dividend growth stocks for your portfolio.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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