Buying dividend stocks is a no-brainer investment. They generate dividend income and have historically delivered higher total returns with less volatility than the broader market. Over the last 50 years, the average dividend stock has delivered a 9.2% average annual total return compared to 7.7% for an equal-weighted S&P 500 index, according to data by Ned Davis Research and Hartford Funds. Meanwhile, dividend growth stocks have delivered even higher total returns (10.2% annualized).
Kinder Morgan(NYSE: KMI) and Brookfield Renewable (NYSE: BEPC)(NYSE: BEP) are no-brainer dividend stocks to buy right now. Their shares are selling for less than $30 each. They can turn less than $200 into a more attractive income stream than an investment in an S&P 500 index fund.
Piping cash into investors' pockets
Kinder Morgan is one of the country's largest energy infrastructure companies. It owns a diversified portfolio of pipelines, processing plants, storage terminals, and export facilities. These midstream assets generate very stable cash flow backed by government-regulated rate structures, fee-based contracts, and hedging agreements. Roughly 68% of the company's cash flow has no price or volume risk, 27% has some variability due to volumes, and only about 5% is commodity price-based.
The gas pipeline giant pays out a little more than half its stable cash flow in dividends. Kinder Morgan's dividend yield is around 5.4% at its current payment level and recent stock price. At that rate, it could turn every $100 invested into its stock into a $5.40 annual dividend income stream. For comparison, the S&P 500 yields around 1.3%, implying a $100 investment would produce about $1.30 per year in dividend income.
Kinder Morgan uses the rest of its cash flow to invest in expansion projects, repurchase shares, and maintain a strong balance sheet. The company currently has $5.2 billion of committed growth capital projects under construction, which should come online through late 2028. Projects include new gas pipelines, renewable natural gas production facilities, and enhanced oil recovery projects. The company also has a strong balance sheet, giving it the flexibility to make acquisitions as opportunities arise.
Those factors give it a lot of visibility into its ability to grow its cash flow and dividends. This year marked Kinder Morgan's seventh straight year of increasing its dividend.
A dividend growth powerhouse
Brookfield Renewable is a leading global renewable energy producer. It sells roughly 90% of the power it generates under long-term, fixed-price contracts. Those agreements supply it with stable and growing cash flow (70% linked to inflation). The company uses that money to pay an attractive dividend (currently yielding around 5%).
Brookfield has increased its high-yielding payout by at least 5% per year since 2011 and at a 6% compound annual rate over the last two decades. It plans to grow its dividend by around 5% to 9% annually over the long term.
The company should have plenty of power to achieve that plan. Inflation-linked rate increases should grow its funds from operations (FFO) per share by 2% to 3% annually through at least 2028. Meanwhile, other organic growth initiatives like margin enhancement activities and development projects should boost its FFO per share by 5% to 9% annually. Add in accretive acquisitions, and Brookfield expects to deliver 10%+ FFO per share growth through at least 2028. It has ample financial flexibility to achieve this plan thanks to its growing post-dividend free cash flow, strong balance sheet, and active capital recycling strategy.
No-brainer dividend growth stocks
Kinder Morgan and Brookfield Renewable have increased their high-yielding dividends for several years in a row. Given their stable cash flows, strong balance sheets, and visible growth profiles, those trends should continue. Because of that, they're no-brainer dividend stocks to buy right now. They should produce growing streams of dividend income and attractive total returns as their stock prices rise with their earnings.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Kinder Morgan. The Motley Fool has positions in and recommends Brookfield Renewable and Kinder Morgan. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
