These S&P 500 dividend stocks are no-brainer buys right now, given their dividend growth potential.
of S&P 500 (^GSPC -0.04%) The index just hit an all-time high, buoyed by tech heavyweights and hopes of a rate cut. However, some strong dividend stocks that make up the S&P 500 index are still well off their all-time highs, giving investors a great buying opportunity.
These amazing dividend stocks can not only generate decades of passive income for you, but also help you build wealth in the process. For example, two such stocks have generated nearly 60% in total returns each in the past five years alone. Here’s why you want to buy these two S&P 500 dividend stocks now and hold them forever.
37 years of consecutive dividend increases
Chevron (CVX -0.18%) has emerged as one of the most promising dividend stocks in the energy sector. Despite the inherent volatility in oil and gas prices, Chevron has not only paid a dividend for decades now, but has increased it for 37 consecutive years.
Chevron reported its highest-ever production in 2023, driven in part by its acquisition of PDC Energy last year in a total deal worth $7.6 billion. The oil and gas producer, however, is also expanding capacity in the Permian Basin and has already started 2024 on a strong note, delivering a 12% year-over-year increase in its first-quarter production. At this rate, 2024 should be another record production year for Chevron.
Importantly, even as Chevron continues to invest in growth, it returned a record $26.3 billion in cash to shareholders in 2023, including $11.3 billion in dividends. Also, Chevron recently announced an 8% dividend increase for 2024 compared to a 6% increase in 2023.
A strong case can now be made for buying Chevron shares: It expects to grow its annual free cash flow (FCF) by nearly 10% through 2027 with Brent crude prices up to 60 dollars per barrel. Brent crude oil is hovering around $83 per barrel as of this writing. Chevron has also improved its return on capital employed (ROCE) in recent years, which reflects management efficiency, as ROCE reveals how much money a company is making from all the capital it has put into its business, including debt. .
Yet despite such a solid profile, Chevron shares are down nearly 19% from all-time highs and yield 4.3% versus the S&P 500, which yields 1.3%. That makes Chevron one of the few S&P 500 dividend stocks to buy now and hold forever.
A no-brainer dividend growth stock to buy
NextEra Energy (NEE -0.16%) is one of the largest renewable energy companies in the US. However, the company stands out from the rest of the clean energy players due to two factors.
First, NextEra Energy is the world’s largest producer of wind and solar energy, as well as a leading battery storage company. Second, it also owns and operates the largest electric company in the US, Florida Power & Light (FPL), which provides electricity to nearly 12 million customers throughout Florida. Both factors combined make NextEra Energy a dividend powerhouse, as its utilities business offers stability while its renewables side offers growth.
NextEra Energy’s performance over the years has been nothing short of impressive. It grew its adjusted earnings per share (EPS) and operating cash flow at compound annual growth rates (CAGR) of 8% and 9%, respectively, in the last decade. This is why the company can increase its dividend per share by 10% CAGR during the period.
It’s no surprise, then, that the stock has been a winner over time: If you had invested $10,000 in NextEra Energy stock 10 years ago, you would have nearly quadrupled your investment, including dividends.
NEE data from YCharts
Here’s why NextEra Energy is such a solid dividend stock to buy today: Despite projecting steady earnings and dividend growth, the renewable energy stock is down nearly 22% from its all-time highs, even as the S&P 500 is hitting record highs.
At the 2024 Investor Day held on June 11, NextEra Energy reiterated its goal to grow its adjusted EPS by 6% to 8% by 2027 and its annual dividend per share by about 10% to at least 2026, driven by massive investments in both of its businesses. . NextEra Energy expects to own nearly 81 (gigawatts) GW of combined renewables and storage capacity by 2027, more than double its current clean energy portfolio in operation.
NextEra Energy’s 2.8% yield may not be high, but the dividend growth alone could make you rich if you buy and hold this stock forever.
Neha Çamaria has no position in any of the mentioned shares. The Motley Fool has positions in and recommends Chevron and NextEra Energy. The Motley Fool has a disclosure policy.