I'm self-employed, so I'm on my own when it comes to saving for retirement. I don't have a pension plan or a 401(k) match to help me retire more comfortably. So I take a reasonably cautious approach with my retirement account. I strive to make investments that I firmly believe will grow my retirement nest egg over the long term.
That's why I focus on dividend stocks. They are proven wealth creators. Over the past 50 years, the average dividend stock in the S&P 500 has delivered a 9.1% average annual total return, outpacing the 7.7% return of an equal-weighted S&P 500 Index. Meanwhile, dividend growers and initiators have delivered even higher total returns of 10.2%. That data has given me the confidence to load my retirement portfolio with dividend growth stocks.
I plan to add several more dividend growers to my retirement account this April, including Chevron(NYSE: CVX) and Rexford IndustrialRealty(NYSE: REXR). Here's why I believe they'll help build my retirement nest egg.
A well-oiled, dividend-paying machine
Chevron has been one of the more durable dividend growers over the decades. The oil giant delivered its 37th consecutive annual dividend increase in 2024, raising its payout by 8%. That continued its recent trend of delivering above-average dividend growth. Over the past five years, Chevron has grown its dividend faster than the S&P 500 and more than twice the rate of its closest peer in the oil patch.
Chevron should have plenty of fuel to continue growing its payout at an above-average pace for the next several years. The oil company's focus is on investing in its highest-return opportunities. That returns focus drives its view that it can grow its free cash flow by more than 10% annually through 2027 at $60 oil. (Crude is currently in the $80s.) That's enough money to fund its capital program, grow its dividend, and repurchase shares at the low end of its $10 billion-$20 billion annual range. Meanwhile, Chevron has several upside catalysts, including higher oil prices and its pending acquisition of Hess. That roughly $60 billion deal would more than double its free cash flow by 2027 at $70 oil while extending its growth outlook into the 2030s.
Meanwhile, Chevron is investing in several emerging lower-carbon energy opportunities to fuel future growth, including hydrogen and carbon capture. These catalysts could give it more power to grow its dividend in the future.
This REIT's regional focus is paying big dividends
Rexford Industrial Realty is an industrial REIT focused on supply constrained markets in Southern California. That regional focus has paid big dividends for its investors over the years. The REIT has increased its funds from operations (FFO) at a 16% compound annual pace over the past five years, versus 11% for its peers, driven by rent growth and acquisitions. Those drivers have allowed it to grow its dividend at a blistering 18% average annual pace, compared wiith 10% annually by its peers.
The REIT is in an excellent position to continue growing briskly. It recently capitalized on an opportunity to acquire $1 billion in industrial assets from real estate funds managed by Blackstone. The deal will add 3 million square feet of exceptionally well-located, high-quality assets across Southern California to its portfolio. That acquisition brought its investment total to $1.4 billion this year. With a fortress-like balance sheet even after that sizable deal, Rexford has the financial flexibility to continue making new investments.
That transaction adds to the company's already strong internal growth profile. It expects rising rents and other catalysts to add $240 million in incremental net operating income over the next three years, a 42% increase by the end of 2026. These internal and external catalysts should enable the REIT to continue growing its dividend at a strong pace.
Magnificent dividend growth stocks
Chevron and Rexford Industrial Realty have delivered above-average dividend growth over the past several years. Given their highly visible growth outlooks, I expect that to continue in the future. I also believe they can produce strong total returns over the long term, making them great investments to help build my retirement nest egg.
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Matt DiLallo has positions in Blackstone, Chevron, and Rexford Industrial Realty. The Motley Fool has positions in and recommends Blackstone, Chevron, and Rexford Industrial Realty. The Motley Fool has a disclosure policy.
