High yields can be alluring, but dividend growth stocks are where the real money needs to be made. These stocks increase dividends from time to time, which when reinvested can grow your initial investment exponentially. Dividend Aristocrats are some of the best dividend growth stocks, proven to be successful with at least 25 years of consecutive annual dividend increases. This is no small feat, which is why only 65 of the S&P 500 stocks today are dividend aristocrats.

If you currently have $ 500 in cash, take advantage of market volatility and check out these three dividend aristocrats who are really smart buys at current prices. I took an exception here: one of the stocks is a Canadian Dividend Aristocrat. A Canadian share listed in the Toronto Stock Exchange may become a dividend aristocrat with just five consecutive annual dividend increases, but this incredible title easily rivals its American counterparts thanks to its 26 years of experience.

A beast in the making

So far, only three real estate investment trusts (REITs) have successfully joined the Dividend Aristocrat niche club. Real estate income (NYSE: O) is the third – he becomes a Dividend Aristocrat in 2020. He’s a well-deserved participant that you would want to buy for five reasons:

  • Its 4.2% dividend yield is one of the highest among dividend aristocrats.
  • It pays a dividend every month.
  • He usually increases his dividend every quarter instead of once a year.
  • It aims for double-digit annual returns for long-term shareholders.
  • An upcoming merger could mean even bigger dividends for shareholders.

Image source: Getty Images.

The last point is especially important because you always want to analyze what the future of a business looks like before investing in it. Realty Income has agreed to acquire TRUTH (NYSE: VER) in an all-stock deal by the fourth quarter. When completed, the number of Realty Income properties will increase by almost 50% to 10,300 properties, mostly single tenant triple net leasehold properties. Under triple net leases, tenants bear most of the property charges.

Some investors may fear that as much as 83% of the combined company’s rent will come from the retail sector, but note that this will be a hugely diverse portfolio with consumer-defensive companies like Walgreens, General dollar, Dollar tree, Walmart, and CVS HealthCVS Pharmacy training is the largest customer base.

In addition, Realty Income plans to split all office buildings into a separate listed REIT, in order to address all shareholder concerns about the future of office space in a pandemic world.

In the last quarter, Realty Income raised its adjusted operating funds forecast (AFFO) for 2021 to $ 3,465 per share at mid-term. The merger is expected to immediately add 10% or more to its 2021 AFFO. The outlook is compelling, given that the stock is currently trading at around 19.6 times 2021 AFFOs and returns 4.2%.

This dividend aristocrat continues to prove critics wrong

caterpillar (NYSE: CAT) stocks are near 23% of their 52 week highs and the dividend yield is 2.3%, making them a really smart dividend aristocrat to buy at current prices.

2020 has been a difficult year for Caterpillar, but it has rebounded strongly since. In the second quarter, the company increased its revenue by 29% year-over-year and more than doubled its operating profit.

Above all, many feared that the cyclical stock would manage to keep its dividend streak alive. Still, Caterpillar increased its dividend by 8% in June, marking its 27th consecutive annual dividend increase. It also resumed share buybacks in the second quarter.

When releasing second quarter results, Caterpillar management stressed that it intended to return almost all of its cash flow from core machinery, power and transportation operations ( ME&T) to shareholders “through cycles”. In other words, even in a declining year, Caterpillar should continue to increase its dividends. In addition, it generated $ 3.4 billion in cash flow from ME&T in the first half of the year and is targeting $ 4 billion to $ 8 billion for the full year.

Remarkably, Caterpillar’s free cash flow is at all-time highs (note the bold line in the chart below), so the stock clearly deserves a higher valuation. The business environment is also favorable, with construction spending on the rise in North America and oil, gas and mining companies spending more than last year thanks to the recovery in commodity prices. I expect Caterpillar to deliver solid numbers for the third quarter within a month, and with President Biden pushing through his trillion-dollar infrastructure bill, Caterpillar is a stock. to buy at every stock market crash.

CAT table

CAT data by YCharts

The mighty dividend aristocrat that no one told you about

you won’t find Enbridge (NYSE: ENB) among the U.S. S&P 500 Dividend Aristocrats List because it is a Canadian company, but it is a dividend aristocrat beast that often goes under investor radar.

Enbridge is one of the largest energy infrastructure companies in North America.

Some stock market investors are wary of stocks in volatile sectors like energy, but here’s the problem: Enbridge operates more like a utility, as 98% of its services are outsourced, which means the company continues to stockpile. , transport and deliver oil and gas, regardless of where the oil and gas markets are located. And that’s why Enbridge has been able to increase its dividends each year for 26 consecutive years at a scorching 10% annual compound rate. Patient shareholders who reinvested dividends have reaped big returns.

ENB chart

ENB data by YCharts

Enbridge just achieved huge growth by acquiring privately held Moda Midstream Operating for $ 3 billion in a deal that will increase Enbridge’s export capacity along the coast’s crucial oil and gas hub of the Gulf and will immediately increase its cash flow.

With volatile stock markets and a high 6.7% return from Enbridge, this dividend aristocrat is one of the few you would want to buy hand in hand right now.

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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