I started investing in my late 20s. But most of my investing activity has taken place in my 30s. And now… I’m coming up on 40 years old. Life comes at you fast. You know what else comes at you fast? Bills.

And as you age, it becomes ever-more important for your investments to produce the income necessary to pay the bills. Plus, the older you get, the less time you have for the compounding process to play out.

If you’re in your 40s, there’s a natural tilt toward yield that starts to play out. And that tilt becomes more and more slanted as you age. However, safety and reliability are still incredibly important.

That’s because you have less time to make up for losses and mistakes. You can take big risks while you’re in your 20s. You have time to make it up. But in your 40s?

You want reliable long-term investments that can produce a healthy amount of income, all while also growing at a good clip in order to make sure your purchasing power doesn’t fall behind.

Today, I want to tell you about three dividend growth stocks to consider buying if you’re in your 40s. Ready? Let’s dig in.

The first dividend growth stock I want to highlight today is Realty Income (O).

Realty Income is a triple net lease real estate investment trust.

Real estate is a fantastic vehicle for building long-term wealth and income. As Mark Twain famously said: “Buy land. They’re not making it anymore.” The issue with real estate, though, is all of the headaches that it tends to come with. If you want to own and manage any kind of income-generating real estate asset, it’s going to come with a slew of responsibilities and issues. Well, this is where a real estate investment trust comes in.

You become an “instant landlord” without any of the hard work.

Realty Income does all of the work that you don’t want to do. They scout properties, take care of financing, land tenants, collect the rent, etc. When you buy shares in Realty Income, you instantly own a slice of more than 11,000 commercial properties that are rented out to tenants in 60 different industries ranging from pharmacies to gyms to convenience stores.

This is one of my favorite dividend growth stocks, especially for investors in their 40s.

It’s just a high-quality enterprise across the board. All they do is consistently grow the business and scale up the property portfolio. That portfolio, by the way, sports an occupancy rate of 98.8%. That just goes to show how valuable these properties are. And check this out. Realty Income has delivered a 15.5% compound annual rate of return since their IPO in 1994. It’s nearly three decades of excellence.

And that excellence carries over to the dividend.

This is a Dividend Aristocrat. In fact, their 29 consecutive years of dividend increases dates all the way back to the IPO. So they’ve been paying and increasing their dividend straight from the get-go. And they pay that dividend monthly. It’s like collecting a monthly “rent check”. They’re so proud of being a reliable source of monthly income for their shareholders, they’ve trademarked themselves as the “The Monthly Dividend Company”.

With a 4.5% yield, this is a big dividend that beats the market three times over. The 10-year dividend growth rate of 5.0% helps you to keep up with rising prices over time. And the dividend is secured by a payout ratio of 76.0%, based on midpoint guidance for this fiscal year’s adjusted funds from operations per share.

All of this goodness comes in a reasonably valued package.

We’re looking at a forward P/AFFO ratio of 16.7, based on that aforementioned guidance. Seeing as how that’s analogous to a P/E ratio on a normal stock, that’s a very reasonable valuation. For further perspective, that 4.5% yield is actually 30 basis points higher than its own five-year average.

It’s not the cheapest stock in the market, but I don’t think you’re overpaying here. And for a dividend growth investor in their 40s who wants reliable, growing monthly dividend income from a Dividend Aristocrat? You really can’t beat Realty Income.

The second dividend growth stock I want to highlight today is UGI (UGI).

UGI is a natural gas and electric power distribution company.

Utility companies – be it through generation, distribution, natural gas, electricity – are super appealing for dividend growth investors in their 40s. Want a sure thing? Well, there are few things in life more sure than this. Utilities provide that which is necessary to a captive customer base. You effectively cannot live without reliable access to the electricity and natural gas that powers your home and your life.

It’s a necessary business model for necessary services.

And that necessity leads to entrenched players running local monopolies that can be sustained for decades… or even centuries. UGI, for instance, has been around since 1882. They now have approximately 3 million customers who rely on them. And with energy prices suddenly spiking and an energy crisis starting to unfold over in Europe, it’s never been more clear that reliable access to energy is critical.

It’s reliable energy and reliable business results.

When you go to UGI’s investor relations site, you’ll see two targets for management. One is a 6% to 10% long-term EPS growth target. How have they done? Well, a 9.6% CAGR in adjusted EPS from 2001 to 2021. Their other target is above 4% long-term divided growth. How have they done here? A 7.2% CAGR in the dividend between 2001 and 2021. The stock itself has a CAGR of 9.6% over the last decade. It’s not running laps around tech companies or anything like that, but this is a boring, reliable business model that consistently pumps out the numbers.

They also consistently pump out a growing dividend.

They’ve increased their dividend for 34 consecutive years. More than three straight decades of ever-higher dividends. If you’re in your 40s and looking for something that can help you sleep well at night, that’s exactly what you want to see. Also, if you’re in your 40s, you want solid income, right?

Well, the stock yields 4.2% here. That blows away the broader market’s pittance. And with a 10-year dividend growth rate of 7.1%, which is pretty close to the 20-year dividend growth rate, showing that consistency once more, you get a great combination of yield and growth here. And adjusted EPS continues to easily cover the dividend more than twice over.

This stock is down more than 30% from its 52-week high, and the valuation looks surprisingly attractive.

If you’re in your 40s, you’re still investing for the long term. Sure, you don’t have the kind of compounding time available to you that an investor straight out of college does. But you’re still thinking about the next few decades. And so valuation at the time of investment is still crucial. Perhaps even more so, because you don’t have time to make up for errors in a perceived margin of safety. Well, this stock looks downright cheap.

That 4.2% yield? Yeah, that’s 150 basis points higher than its own five-year average. That’s a huge spread. Recent results have been a little lumpy, so you have to take the super low P/E ratio of 6.6 with a grain of salt. But even the sales multiple of 0.9 is quite a ways off of its own five-year average of 1.2. DGI, meet UGI. Dividend growth investors in their 40s should definitely take a good look at UGI.

Last but not least, I want to highlight Verizon (VZ).

Verizon is a multinational telecommunications conglomerate.

Real estate. Energy. And now a telecom. All of this is fertile ground for reliability, consistency, great income – and even a decent sprinkling of growth. If you’re in your 40s, it’s right up your alley.

Want to invest in something people basically cannot live without? Well, here you go.

Try taking away someone’s smartphone or mobile data. It ain’t gonna happen. People look at their smartphones like an extra appendage, and mobile data is considered as much a basic need as running water. That’s the reality we live in. And being one of the largest such providers of mobile data in the whole world, Verizon is positioned to continue profiting handsomely from this quasi-addiction.

Want to invest alongside Warren Buffett? Here’s your opportunity.

Warren Buffett’s conglomerate Berkshire Hathaway has over $8 billion invested in Verizon. And because of the number being so large, we can be almost positive that it was Warren Buffett behind that investment. What does Buffett see? Well, I think he sees what I was just talking about.

He sees a company providing an in-demand service to people all too happy to pay for it. The average mobile phone bill in the US is now well over $100/month. That’s more than I pay for running water. And what do you think those big mobile phone bills lead to?

They lead to big dividends.

That’s right. Big mobile phone bills, big revenue, big profits, big dividends. Verizon’s stock yields 4.8% right now. That’s almost four times as high as the broader market’s yield. It’s not just the market being beaten here. This current yield also beats the stock’s own five-year average yield of 4.3%. Now, Verizon won’t wow you with growth. The ten-year dividend growth rate is only 2.5%. This is more of an income play than a compounder.

But if you’re in the market for income – and if you’re in your 40s, you probably are – Verizon will get the job done. And with the dividend only accounting for 46.8% of the company’s expected adjusted EPS for this coming fiscal year, it’s a secure payout.

Verizon doesn’t necessarily wow you in any one area. And that goes for the valuation, too.

Verizon isn’t a slam dunk in any one category. Instead, it’s just a steady, stodgy business that plods along and pays a fat dividend. This nature is also present in the valuation. That’s in terms of it being neither extremely cheap nor extremely expensive. I see it as a pretty fair deal for a good business that will keep handing out that big dividend every quarter… and keep increasing it at a low-single-digit rate every year.

Based on that aforementioned guidance, the forward P/E ratio is 9.7. The business isn’t growing super fast. But that’s factored in with a single-digit P/E ratio. Then there’s the cash flow multiple of 5.6, which is well off of its own five-year average of 7.0. Dividend growth investors in their 40s who want to invest alongside Warren Buffett and get a near-5% yield on their money should consider buying shares in Verizon.

— 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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