2 Top Dividend Stocks to Buy in January

Dividend stocks can be powerful investments. They've outperformed non-payers by more than two to one over the last 50 years, according to data from Ned Davis Research and Hartford Funds.

However, not all dividend stocks can deliver outperformance. The highest returns came from companies that grew their dividends. While lots of companies increase their dividends, Brookfield Renewable (NYSE: BEPC)(NYSE: BEP) and Chevron (NYSE: CVX) stand out for their terrific dividend growth track records. They also offer higher-yielding payouts and have more growth ahead. These factors make them stand out as some of the top dividend stocks to buy to start the new year.

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A powerful dividend growth stock

Brookfield Renewable has grown its dividend at a 6% compound annual rate since 2001. It expects that upward trend to continue. The leading global renewable energy company aims to increase its payment at a 5% to 9% annual rate over the long term.

The company has highly visible growth ahead. It sells the vast majority of the electricity it produces under long-term, fixed-rate power purchase agreements (PPAs) that link rates to inflation. This factor gives it clear visibility that its funds from operations (FFO) should rise by around 2% to 3% annually on inflation-driven growth alone. Meanwhile, market prices for power have grown faster than inflation. Because of that, Brookfield believes it can add another 2% to 4% to its FFO per share each year by replacing expiring PPAs with new higher-rate contracts.

On top of that, Brookfield has a vast pipeline of renewable energy development projects. They should add another 4% to 6% to its FFO per share each year. The company also expects to continue making accretive acquisitions. These factors drive Brookfield's view that it can deliver more than 10% annual FFO per-share growth for at least the next five years. Add that growth to its more than 5% yielding dividend (well above the S&P 500 index's 1.2% yield), and Brookfield could produce powerful total returns in the coming years.

Ample fuel with an upside catalyst

Chevron has increased its dividend for over 30 straight years, one of the longest streaks in the energy sector. The oil giant has delivered more than 5% annual dividend growth over the last five years (including 8% last year). That's faster than the S&P 500's dividend growth rate and its closest peers in the oil patch.

The oil company is investing heavily in developing its highest-return assets. That strategy has it on track to grow its free cash flow at a more than 10% annual rate through 2027, assuming oil averages $60 a barrel (it's currently over $75 a barrel). At $70 oil, Chevron can produce enough cash over the next few years to fund its high-return capital program, pay a growing dividend, and repurchase shares at the top end of its $10 billion to $20 billion annual target range. Meanwhile, thanks to its strong balance sheet, it has the financial flexibility to repurchase shares at the low end of its target range even if oil prices average $50 a barrel over the next few years.

Chevron could grow its free cash flow even faster if it can close its needle-moving acquisition of Hess. That deal would more than double its free cash flow by 2027 at $70 oil. The acquisition could close this year if Chevron wins its arbitration case against Exxon regarding Hess' position in Guyana. It could give Chevron even more fuel to grow its 4.5%-yielding dividend in the future.

Top-notch dividend growth stocks

Brookfield Renewable and Chevron have excellent records of increasing their dividends. That seems likely to continue. Add in their higher yields, and they stand out as some of the top dividend stocks to buy this January.

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