If you’re looking to build long-term wealth, consistently investing in the stock market is a powerful strategy. Among the myriad of options, dividend investing stands out for those in search of passive income.
Research by Hartford Funds (a division of Hartford Financial Services), in collaboration with Ned Davis Research, reveals a compelling narrative: Dividend-paying companies have historically outperformed their counterparts that don’t pay dividends. Over a 50-year period, investors in dividend stocks enjoyed an annual return of about 9.2%, more than double the 4.3% return from non dividend payers.
Dividend-paying companies tend to have steady cash flows, strong capital management, and a deep-rooted commitment to rewarding their shareholders. If you’re looking for passive dividend income, here are three companies that offer payouts well above the S&P 500‘s current yield of just 1.24%.
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Dominion Energy(NYSE: D) is a leading utility, serving over 3.6 million homes and businesses in Virginia and the Carolinas. In recent years, Dominion has undergone a transformation, streamlining its business by divesting from pipelines and natural gas utilities.
It is strengthening its balance sheet and aligning its payout ratio with its peers. With a stable and predictable cash flow, the utility should easily support its attractive 4.7% yielding dividend.
Its focus on regulated electric-utility service in high-growth regions makes it a pure-play electricity provider with excellent upside. Its presence in Northern Virginia is significant, given its role in supplying energy to “Data Center Alley,” one of the largest concentrations of data centers in the world.
Last year, the company said it had received requests from data centers to provide several gigawatts of electricity. According to CEO Bob Blue, “Historically, a single data center required around 30 megawatts, but newer AI-focused facilities are requesting 60 to 90 megawatts or more, with some campuses needing up to several gigawatts.”
With its unique position in one of the largest data center markets globally, the utility has carved out a competitive advantage and is a good example of being the right company at the right time and place.
For investors looking to capitalize on the artificial intelligence (AI) boom and surging energy demand, Dominion Energy offers a compelling opportunity for income investors today.
Pipeline stocks can be another solid option for investors in search of income. Pipeline operators (or midstream companies) move oil, natural gas, and other resources from extraction sites to refineries and distribution centers. Their pipeline networks, coupled with long-term agreements, facilitate the flow of energy while providing visibility into future revenue.
Enterprise Products Partners(NYSE: EPD) is a top midstream operator with a network of pipelines stretching over 50,000 miles. Thanks to its business model of transporting and storing energy products, it has dependable cash flow, enabling it to reward its investors consistently. Today, the stock yields a solid 6.8% dividend.
Enterprise has consistently rewarded shareholders since its 1998 initial public offering. Since then, the company has returned $58 billion to its shareholders through distributions and stock repurchases and has raised its payout for 26 consecutive years.
Midstream operators like Enterprise could do well under President Donald Trump and Secretary of Energy Chris Wright, who want to unleash American energy resources. Deregulation and opening up land for drilling could support more pipeline infrastructure projects to increase transportation and storage, and boost pipeline operators’ bottom lines.
Enterprise Products Partners is positioning itself well with $7.6 billion in projects under construction, the majority of which ($6 billion) will come on line in 2025.
Chevron(NYSE: CVX) is one of the world’s largest integrated energy companies. With operations across 180 countries, it is involved in oil and gas exploration, refining, and marketing and is a leading producer in the resource-rich Permian Basin and Gulf Coast.
Chevron smooths its earnings in an otherwise volatile industry by operating across the energy value chain. Its upstream operations, including oil and gas production, benefit from elevated oil prices, which was evident in 2022 when prices soared. Its downstream operations, including refining crude oil into gasoline, diesel fuel, and petrochemicals, can help Chevron weather oil price declines and make the business more resilient.
The company has invested heavily in its upstream business and, according to an estimate by data analytics provider Wood Mackenzie, has the lowest break-even level among its peer group for its base business at around $30 per barrel.
Chevron has done an excellent job growing its dividend annually for the past 38 years despite operating in the cyclical oil and gas business. The company is well capitalized and will continue to reward shareholders with a growing payout and share repurchases, making it another excellent stock for dividend investors today.
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Courtney Carlsen has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Dominion Energy and Enterprise Products Partners. The Motley Fool has a disclosure policy.
