3 Brilliant Dividend Growth Stocks to Buy Now and Hold for the Long Term

The article advises dividend investors to prioritize dividend growth alongside yield to combat inflation and maintain purchasing power. It suggests two strategies: a 'barbell' approach combining high-yield, slow-growth stocks like Realty Income (5.5% yield, 3.6% dividend growth) with low-yield, high-growth companies such as Mastercard (0.5% yield, 20% growth) and Cintas (1% yield, 22% growth); or a 'hybrid' approach focusing on stocks like NextEra Energy (2.8% yield, 11% growth) which offer a balance of both. This strategy aims to ensure the long-term sustainability and growth of dividend income.

Analysis

The article emphasizes that dividend investors should prioritize dividend growth alongside yield to counter inflation's erosive effect on purchasing power, noting historical inflation at approximately 3% annually. Relying solely on high-yield stocks, such as Realty Income (O) with its 5.5% yield but only 3.6% dividend growth over the past decade, offers minimal real income growth. This suggests a strategic shift from pure income generation to income growth for long-term portfolio health.

To address this, the analysis proposes a "barbell" strategy, pairing high-yield, slow-growth assets with low-yield, high-growth dividend payers. Mastercard (MA) and Cintas (CTAS) exemplify the latter, boasting impressive decade-long annualized dividend growth rates of 20% and 22% respectively, despite their lower current yields of 0.5% and 1%. Mastercard's dominant payment processing position and Cintas's acquisition-driven growth underpin their strong dividend growth potential.

Alternatively, investors can pursue a hybrid approach by identifying companies that offer a balance of yield and growth, such as NextEra Energy (NEE). NEE provides a 2.8% dividend yield and an 11% dividend growth rate over the past decade, significantly outperforming the S&P 500's ~1.2% yield. Its growth is primarily fueled by substantial investments in renewable energy, complementing stable regulated utility operations, positioning it well for sustained future dividend increases.

Key Decisions for Investors

• Re-evaluate dividend investment strategies to prioritize dividend growth alongside yield, aiming to combat inflation and maintain long-term purchasing power.
• Consider a "barbell" portfolio approach, blending high-yield, slower-growth stocks with lower-yield, high-dividend-growth companies like Mastercard or Cintas for balanced income and appreciation.
• Explore hybrid opportunities such as NextEra Energy, which offers a compelling mix of current yield and strong dividend growth driven by secular trends like renewable energy.