Dividend stocks can be fantastic investments. The best ones pay an attractive and growing stream of dividend income while also delivering healthy stock price appreciation over the long term. That combination of income and growth can help investors steadily grow their wealth.
While there are lots of dividend stocks out there, Johnson & Johnson (JNJ 2.31%), Invitation Homes (INVH 1.74%), and NextEra Energy (NEE 1.02%) are three of the best. They currently offer dividend yields over 3%, more than double the S&P 500's (^GSPC 0.13%) dividend yield. They also have long histories of growing their dividend payments, which seems likely to continue.
Because of that, they could turn a $500 investment into an attractive and growing stream of dividend income, with the potential of meaningfully increasing the value of that investment in the coming years.
Johnson & Johnson's dividend currently yields 3.3%. At that rate, every $100 invested in the company would produce $3.30 of dividend income each year.
The healthcare giant has one of the healthiest dividends in the world. It's one of only two companies with an AAA-bond rating, which is higher than the U.S. government. The company has a fortress balance sheet, with only $13.5 billion of net debt ($38.8 billion of cash against $53.3 billion of debt). That's a paltry sum for a $380 billion company by market cap that generated $20 billion in free cash flow last year (easily covering its $11.8 billion dividend outlay).
The innovative medicine and medical technology company recently increased its dividend by 4.8%, extending its growth streak to 63 years in a row. That kept it in the elite group of Dividend Kings -- companies with 50 or more years of annual dividend increases.
Johnson & Johnson is one of the top investors in research and development across all industries ($17 billion last year). It also invests heavily in strategic inorganic growth (over $30 billion of acquisitions in the past year). These investments should help support continued dividend growth.
Invitation Homes currently has a 3.4% dividend yield. The real estate investment trust (REIT) produces very steady income to support its high-yielding payout. It owns or manages over 110,000 rental homes across several top housing markets.
The landlord owns homes in markets experiencing strong population and job growth. That drives demand for rental housing, keeping occupancy high while enabling the REIT to steadily raise rents.
In addition to rent growth, Invitation Homes routinely buys more homes. It has several acquisition channels, including purchasing newly built homes directly from builders. Invitation Homes currently has more than 2,000 homes under contract that are under construction.
Those growth drivers have enabled Invitation Homes to steadily increase its dividend. The REIT raised its payment by 3.6% last December and has hiked its dividend every year since it went public in 2017.
NextEra Energy's dividend yields 3.4%. The utility generates very stable cash flow to support its high-yielding dividend. Electricity demand is very stable, while government-regulated rate structures and long-term, fixed-rate contracts provide the bulk of its revenues.
The company invests heavily in maintaining and expanding its energy infrastructure. It's one of the country's leading investors, with a focus on building renewable energy capacity. Those investments deliver steady earnings growth. NextEra Energy currently expects to grow its adjusted earnings per share at or near the high end of its 6% to 8% annual target range through at least 2027.
Earnings growth will support continued dividend increases. NextEra expects to hike its payout by around 10% annually through at least next year. The company has grown its dividend at a 10% compound annual rate for the past 20 years while delivering dividend growth for the past three decades.
Johnson & Johnson, Invitation Homes, and NextEra Energy all currently offer dividend yields above 3%. They also have terrific records of increasing their dividends, which should continue. Because of that, they're great stocks to buy right now if you have a little cash to invest. They can turn that money into a rising stream of dividend income, while also likely delivering solid stock price appreciation as they continue growing their businesses and earnings.
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