I'm filling my retirement account with dividend stocks. While I like to see the passive income flow into my portfolio, that's not the main factor. The biggest reason is outperformance. Dividend stocks have historically delivered more than double the total return of non-payers (9.2% annualized over the last 50 years versus 4.3%, according to data from Ned Davis Research and Hartford Funds).
The sweet spot has been companies that pay higher-yielding, steadily growing dividends. They've delivered the highest returns (and outperformed more often) with the lowest volatility.
Enbridge(NYSE: ENB), Invitation Homes(NYSE: INVH), and Kenvue(NYSE: KVUE) fit these criteria of paying higher-yielding and steadily rising dividends. That's why I recently bought more shares in my retirement account.
The fuel to continue growing
Enbridge currently pays a 6.3%-yielding dividend. That's several times higher than the S&P 500's (SNPINDEX: ^GSPC)1.3% dividend yield.
The Canadian pipeline and utility company's high-yielding payout is on a very sustainable foundation. It generates very stable cash flow. About 98% of its earnings come from cost-of-service or contracted assets, where it gets paid regardless of whether customers use their allotted capacity, or a fixed-fee based on volumes.
Meanwhile, Enbridge pays out 60%-70% of its stable cash flow in dividends. That enables it to retain billions of dollars each year to help fund new investments. Enbridge also has a strong investment-grade balance sheet, giving it additional flexibility to continue expanding.
The company currently has a multibillion-dollar backlog of commercially secured capital projects under construction. These projects include new natural gas pipelines, gas utility expansions, and renewable energy development projects that will come online through the end of this decade. That gives the company lots of visibility into its future growth. Because of that, Enbridge should have no trouble continuing to increase its high-yielding dividend, something it has done for 30 straight years.
Cashing in on strong housing demand
Invitation Homes' dividend currently yields 3.5%. The real estate investment trust (REIT), which focuses on owning single-family rental properties, has increased its dividend every single year since it became public in 2017.
The REIT's rental properties provide it with stable, growing rental income. Last year, it delivered same-store net operating income (NOI) growth of 4.6%, which led residential REITs. The company is benefiting from strong demand for single-family rental properties, partly due to the continued high cost of buying a home. Invitation Homes also focuses on markets benefiting from job and population growth, which helps drive higher demand for rental housing.
The landlord is also investing money to expand its rental property portfolio. Last year, it bought 2,200 homes for $765 million, funded mainly through the sale of 1,575 homes for $646 million. The REIT buys homes from several sources, including partnerships with leading home builders. It agreed to buy around 2,500 homes from builders, which should close in the coming quarters.
These new investments help further grow its rental income, providing additional room to continue increasing its dividend.
Building on a healthy legacy
Kenvue currently pays a 3.5%-yielding dividend. Theconsumer healthcare companyhas a relatively short history of paying dividends. It initiated its payout in 2023 following its separation from healthcare giant Johnson & Johnson.
However, Kenvue is already continuing the dividend-paying legacy of its former parent by increasing its payment last year. Johnson & Johnson has delivered 62 years of annual dividend growth.
The leading owner of consumer healthcare brands (e.g., Band-Aid, Listerine, and Tylenol) is in an excellent position to continue increasing its dividend. Its portfolio of iconic brands generated nearly $15.5 billion in sales last year and $1.3 billion in free cash flow after reinvesting in its growth. That gave it the cash to pay a growing dividend while maintaining its solid balance sheet. With sales and earnings expected to keep growing, Kenvue should be able to continue the legacy of Johnson & Johnson of annual dividend increases.
High-quality, high-yielding dividend stocks
Enbridge, Invitation Homes, and Kenvue are great dividend stocks. They have higher-yielding payouts that they've increased every year, which should continue. Because of that, they should be able to help me grow the value of my retirement account as they produce more income and their stock prices rise. That's why I recently added to my position and will likely continue doing so in the future.
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Matt DiLallo has positions in Enbridge, Invitation Homes, Johnson & Johnson, and Kenvue. The Motley Fool has positions in and recommends Enbridge, Invitation Homes, and Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
