Here Are My Top 2 Dividend Stocks to Buy Now

Dividend stocks can be fantastic long-term investments. Over the past 50 years, the average dividend stock in the S&P 500 has outperformed nonpayers by more than 2-to-1. The best returns have come from companies that consistently increase their dividends.

There's a long list of great dividend growth stocks. Realty Income (NYSE: O) and Brookfield Renewable (NYSE: BEP)(NYSE: BEPC) currently top my list as the best ones to buy right now. They offer high dividend yields and healthy growth prospects. Those factors should enable them to produce attractive total returns in the coming years.

The building blocks for a solid total return

Realty Income has a phenomenal record of paying dividends. The real estate investment trust (REIT) recently declared its 653rd consecutive monthly dividend. The REIT has increased its payment for 108 straight quarters and 127 times since coming public in 1994, growing the payout at a 4.3% compound annual rate. That rising dividend has contributed to the company's 14.1% annualized total return since its public market listing 30 years ago.

The REIT currently offers a dividend yield above 5.5%. That's several times higher than the S&P 500, which has a dividend yield below 1.5%.

Realty Income should be able to continue increasing its dividend in the future. It has a conservative dividend payout ratio for a REIT at 75% of its adjusted funds from operations (FFO). Meanwhile, it has one of the strongest balance sheets in the sector. That gives it ample financial flexibility to continue acquiring income-producing real estate.

It has historically grown its adjusted FFO by around 5% per share through a combination of rent growth, property acquisitions, and corporate mergers with other REITs. Realty Income is in an excellent position to continue growing by around that same rate in the future, given the massive size of the commercial real estate market. Add that growth rate to its high dividend yield, and Realty Income could deliver total returns above 10% each year.

Powerful return potential

Brookfield Renewable has put together a strong record of paying dividends. The leading global renewable energy producer has grown its payout at a 6% compound annual rate over the past two decades. It currently yields nearly 5%.

That high-yielding payout is on a very firm foundation. The company's dividend payout ratio has fallen over the years because it has grown its FFO much faster than the dividend, namely at a 12% compound annual rate since 2016. That ratio has averaged around 77% through the first nine months of this year. Meanwhile, Brookfield has a strong investment-grade balance sheet with lots of liquidity, further enhancing the sustainability of its dividend.

The company expects to continue growing briskly in the future. It believes it can grow its FFO per share by more than 10% annually over the next decade. Its growth is highly visible and secured over the next five years and increasingly visible and secured beyond that.

A major factor is its massive backlog of development projects. The company has 65 gigawatts of projects in its advanced-stage pipeline. That helps power its view that it can commission about 10 GW of new capacity annually through 2030. Development projects alone should add 4% to 6% to its FFO per share each year. Add in higher power prices, margin enhancement activities, and accretive acquisitions, and Brookfield has multiple drivers to deliver double-digit growth.

The company's robust earnings growth rate supports its plan to increase its high-yielding dividend by around 5% to 9% annually in the future. Add that growing income stream to its powerful earnings growth rate, and Brookfield could generate total returns of more than 15% per year.

Attractive income and upside potential

Realty Income and Brookfield Renewable have great records of growing their dividends. Thanks to their strong financial profiles and growth prospects, they should continue increasing their high-yielding payouts in the future. That combination of income and growth should enable them to generate double-digit total annual returns. This strong return potential from such great companies makes them stand out as great dividend stocks to buy right now.

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*Stock Advisor returns as of November 11, 2024

Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.