If you like dividends, you should like these 4 stocks

“Do you know the one thing that makes me happy?” It’s seeing my dividends come in.
– John D. Rockefeller

There’s a reason one of the richest men in the world loved dividend stocks so much. Aside from the extra income, dividends, when reinvested, can grow rapidly over the years thanks to the power of compounding, bringing you rich returns.

Great dividend-paying stocks, however, go beyond high yields – they are also stable and growing. That’s why you just can’t ignore Sherwin-Williams (NYSE: SHW), Illinois Tool Works (NYSE: ITW), NextEra Energy (NYSE: NEE), and the PowerShares S&P 500 High Dividend Low Volatility Portfolio (NYSEMKT: SPHD). Here’s why.

Paint can also color your dividend portfolio

The last time you repainted your home or workplace, did you consider making money with these paint cans? You can if you invest in paint manufacturers. Specifically, you can invest in paint and coatings specialist Sherwin-Williams.

I know a 1% dividend yield isn’t exactly appealing, but it’s hard to ignore Sherwin-Williams when you realize that he not only paid out, but also increased his dividends each and every. year since 1979, doubling it in the past six years. or. What matters even more is that Sherwin-Williams has increased its dividend even in times of crisis like the housing bubble. There is no better proof of the reliability of this dividend stock.

Image source: Getty Images

Sherwin-Williams’ consistent profitability and dividend streak can be largely attributed to the strength of its brand. Sherwin-Williams, Dutch Boy and Pratt & Lambert are just a few of his brands that have become household names. The company’s strategy of creating its own stores to take the pulse of consumers instead of relying on chain stores for sales has clearly paid off. Most recently, Sherwin-Williams reported 7.5% year-over-year growth in same-store paint sales for its first quarter, continuing its winning streak since fiscal 2016, when its sales in comparable stores increased by 5%.

With Sherwin-Williams upping its full-year profit forecast, building on free cash flow valued at over $ 1.3 billion, and on track to acquire Valspar To become the world’s largest paint and coatings company is one hell of a move no dividend enthusiast can afford to ignore.

You won’t regret owning this dividend dynamo

As boring as the Illinois Tool Works business can be, you just can’t help but be excited about the stock’s record and dividend potential. Illinois Tool Works is a mega-conglomerate that manufactures a wide range of equipment and components for several industries including automotive, food equipment, oil and gas, healthcare, construction, packaging and electronic. Managing such a diverse portfolio is certainly not child’s play, but Illinois Tool Works has found its strength in its 80/20 business strategy: each of its business segments focuses on the key 20% of its customers or products that generate 80% of its sales.

This focus and diversity of intent has proven to be a win-win – Illinois Tool Works has generated consistent earnings and cash flow over the years. It has rewarded shareholders with annual dividend increases for over 50 years now, with dividends increasing at a compound average rate of 14% since 2012.

Again, don’t be put off by Illinois Tool Works’ low dividend yield of 1.9%, as its dividends have tremendous growth potential. And I’m not saying this based solely on its dividend history. Illinois Tool Works recently released strong first quarter numbers, raised its full-year EPS guidance, and plans to convert 100% of its net earnings to free cash flow this year. Considering he ended fiscal 2016 with almost $ 2 billion in FCFs and paid out around $ 821 million in dividends, there is plenty of room for higher dividends for several years to come.

Are you tempted by the dividends of renewable energies?

The appeal of NextEra as a dividend-paying share lies in its commercial structure. As a yield company, NextEra buys and operates distressed, high yielding assets and passes a large portion of its profits to shareholders in the form of dividends. The company has increased its dividend at a compound annual rate of 9% since 2005.

I believe NextEra’s growth potential lies in its focus on clean energy. Mind you, NextEra is not just any other clean energy company. Together with its subsidiaries, NextEra is the largest supplier of solar and wind energy in the world and is also one of the largest nuclear energy operators, with a total generation capacity of around 45,900 megawatts. Its subsidiary NextEra Energy Resources added a record 2,500 MW of wind and solar projects in 2016.

Management plans to increase its adjusted earnings per share from 6% to 8% through 2020. The company has historically increased its dividends at the same rate as adjusted earnings, which should give income investors a fair idea of ​​this. what to expect in the future.

Charts showing the relative growth of NextEra Energy's dividends versus its Adjusted EPS.

Image source: NextEra Energy presentation in February / March.

With NextEra offering a good 2.9% yield and trading well below the industry and its own five-year average valuation at 16 times rolling earnings, now is a great time to consider this dividend growth stock. .

A basket of stocks with incredible dividends

We’ve discussed some great dividend-paying stocks so far, but what if you could buy a basket of high-yielding diversified stocks all at once? Sounds like a deal, right? My next pick is just that – the exchange-traded fund known as Invesco’s PowerShares S&P 500 High Dividend Low Volatility Portfolio.

This ETF is unique in that it invests in high dividend stocks which are less volatile. It does this by tracking the S&P 500 Low Volatility-High Dividend Index, which includes the 50 “least volatile high dividend” stocks of the S&P 500, based on the standard deviation of daily prices over the 252 days. following awards. Simply put, the highest yielding stocks that were also the least volatile rank in the bottom 50. For any income investor, high return and low volatility are a winning combination. Check the ETF’s total returns against the S&P 500 over the past three years:

SPHD Total Return Price Table

Total return price SPHD given by YCharts

What I also like about the PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF is that it offers exposure to almost every industry, with the biggest ones being utilities, real estate and consumer staples. Among the actions, Iron mountain and Welltower Inc. are his two main titles at the moment. With an SEC-defined yield of 3.79% and its inherent low volatility, this ETF is as good as it can get for dividend enthusiasts.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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