I've been captivated by dividend stocks ever since I received my first dividend payment in my early 20s. It was so exciting to get paid for basically doing nothing. That started my journey of investing in dividend stocks to collect more passive income.
Each month I buy several dividend stocks to help build my passive income stream toward my goal of having it eventually offset my expenses. This October, I plan to add to my positions in Blackstone Group (NYSE: BX), Clearway Energy (NYSE: CWEN)(NYSE: CWEN.A), Digital Realty (NYSE: DLR), Realty Income (NYSE: O), and NextEra Energy (NYSE: NEE) as more cash flows into my portfolio. Here's why I can't wait to increase my position in these top-notch dividend stocks.
Cashing in on alternatives
Blackstone Group is a leading alternative asset manager. That business model generates lots of cash from management fees and performance revenues as the funds it manages for clients achieve their investment objectives. The company reported $2 billion of distributable earnings in the second quarter, up 86% year over year. That gave Blackstone the cash to pay a hefty dividend that currently yields 6.7%. While Blackstone's dividend payment ebbs and flows with its income, I expect it to rise in the coming years as the company capitalizes on the continued growth in investors allocating capital to alternative investments.
Plenty of power to continue growing
Clearway Energy is a leading renewable energy producer. This business generates very stable cash flow, as Clearway sells the power it produces to utilities and other large corporate buyers. That gives it the steady cash flow to support its 4.5%-yielding dividend.
The company expects to grow that payout toward the upper end of its 5% to 8% annual target range through at least 2026. Powering that forecast is its capital recycling strategy. It recently sold its thermal assets to KKR, receiving $1.46 billion of net proceeds. It's redeploying that money into higher-returning investments. It has already identified transactions to allocate over 55% of that capital. Given the enormous investment required to transition the U.S. economy to cleaner energy sources, it should have plenty of opportunities to put the rest of the money to work. Doing so will grow its cash flow so that it can continue increasing its dividend.
Data-driven dividend growth
Digital Realty is a leading data center REIT (real estate investment trust). The company generates recurring revenue by leasing capacity in its data centers to companies that need space to store their data. That helps support its dividend, which currently yields 5.2%.
Digital Realty has increased that payout for 17 straight years. It seems likely that the REIT will be able to continue growing its dividend in the future. It has a conservative dividend payout ratio for a REIT and a solid investment-grade balance sheet. That gives it the financial flexibility to expand its portfolio. Digital Realty currently has 41 development projects underway, with half that capacity already pre-sold to customers. Meanwhile, it recently acquired a stake in African data center company Teraco to expand its global presence further. These expansion-related investments should enable Digital Realty to continue growing its attractive dividend.
The flexibility to continue growing
Realty Income is one of the most reliable dividend stocks around. The REIT has made 627 consecutive monthly dividend payments. Meanwhile, it has increased its dividend 117 times since its public market listing in 1994, including for the last 100 straight quarters, easily qualifying the S&P 500 member as a Dividend Aristocrat. The company has grown its payout at a 4.4% compound annual rate.
Realty Income should be able to continue growing its dividend in the future. It has a conservative dividend payout ratio and a top-tier balance sheet. That gives it the financial flexibility to continue acquiring income-producing properties. Realty Income has already bought more than $3 billion of real estate this year, putting it on pace to make over $6 billion of purchases. These new additions should enable it to continue growing the dividend, which currently yields 5.1%.
Powerful dividend growth ahead
NextEra Energy also has an exceptional dividend track record. Like Realty Income, the clean energy-focused utility qualifies as a Dividend Aristocrat.
The company has delivered high-powered dividend growth over the years. It has grown its payout at a 9.8% compound annual rate since 2006. NextEra currently expects to increase its dividend, which yields 2.2%, at around a 10% annual rate through at least 2024. Its massive backlog of renewable energy and utility expansion projects is powering that forecast. It has ample financial flexibility to fund that growth thanks to its conservative dividend payout ratio and strong investment-grade balance sheet.
Great income now with even more in the future
Blackstone, Clearway Energy, Digital Realty, Realty Income, and NextEra Energy rise toward the top of all dividend stocks because they offer higher-yielding dividends that they should be able to continue growing in the future. Because of that, I can collect more dividend income per dollar invested today, with that income stream likely rising at a healthy pace in the future. That compelling combination is why I can't wait to add to my positions in these top-tier dividend stocks over the coming month.
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Matthew DiLallo has positions in Blackstone Inc., Clearway Energy, Inc., Digital Realty Trust, NextEra Energy, and Realty Income. The Motley Fool has positions in and recommends Blackstone Inc., Digital Realty Trust, KKR, and NextEra Energy. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
