3 Dividend Stocks to Double Right Now

Dividends are a great source of passive income that can help supplement your earned income. The good news is that it’s not hard to identify and buy a basket of dividend stocks that can help you generate this income stream.

There are several characteristics I look for when filtering good dividend stocks for my portfolio. First, it must be a highly cash-generating business and have a market-leading position that ensures they can continue to produce healthy and growing free cash flow. They also need to demonstrate a solid track record of paying growing dividends over the years.

The key to increasing your dividend income is to consistently buy shares of such companies and then compound your dividends by reinvesting them in the same companies. Over time, increasing dividends per share, along with a larger stake in the business, will allow you to increase the amount of dividends you receive per year. The idea is to build a passive retirement income stream that you can comfortably rely on in your golden years. It is not a difficult process to understand, but it requires patience and perseverance.

Here are three dividend stocks that fit the bill and can allow you to slowly build your wealth over the years.

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1. Enbridge

Enbridge (ENB 0.10%) is a diversified energy delivery company with four main divisions: liquids pipelines, natural gas pipelines, utilities and gas storage, and renewable energy. The company is a major player in the energy sector and supplies about 30% of the crude oil produced in the US and transports a fifth of the natural gas consumed there. This strong market position allows Enbridge to generate steady cash flow as it occupies a dominant position in the energy delivery industry.

The business saw its revenue rise and then fall from C$47.1 billion in 2021 to C$53.3 billion in 2022 and then to C$43.6 billion in 2023. Net income was hit by a over the years of one-off items, along with goodwill impairment and long-lived assets, but averaged approximately CA$5.9 billion over the three years. Enbridge’s free cash flow was more consistent, however, rising from $1.2 billion in 2021 to $9.3 billion in 2023.

The company’s growing free cash flow generation has allowed it to continuously raise its dividend over the years. The most recent quarterly dividend was $0.915 and completed a 29-year streak of uninterrupted dividend increases at an annual rate of about 10%.

Enbridge has paid dividends to its shareholders for more than 69 years, capping an impressive track record for the energy delivery company. Enbridge should support this dividend growth with its recent acquisition of three gas utilities to support its businesses, for which federal approvals have already been obtained. Its Renewable Energy division is also executing on growth initiatives unveiled during Investor Day, with several projects in the US and Canada signing power purchase agreements with top companies such as Amazon and AT&T.

For the first half of 2024, Enbridge continued to produce strong financial results with distributable cash flow of $6.3 billion, up from $5.9 billion in the prior year. Management’s focus on low capital intensity and utility-like growth means investors should continue to see Enbridge’s dividend continue to grow for years to come.

2. Home Depot

Home Depot (HD -1.38%) is the world’s largest home improvement retailer with 2,340 stores and more than 760 branches in 50 US states, 10 Canadian provinces and Mexico. The company holds considerable sway in the retail sector and is a household name that many rely on to find a wide variety of merchandise.

The company saw sales remain flat from 2021 to 2023, rising from $151.2 billion to $152.7 billion, while gross profit remained flat at around $50.8 billion to $51 billion due to inflationary pressures. Net profit fell slightly from $16.4 billion in 2021 to $15.1 billion in 2023, mainly due to higher interest expense as interest rates rose over the past two years.

On a positive note, Home Depot’s free cash flow has remained consistently high and averaged $14.5 billion per year between 2021 and 2023. This consistency has allowed the retailer to increase its dividend every year since 2008 , most recently $2.25 per quarter, up 7.7% year over year.

The company again saw its earnings for the first half of 2024 weighed down by higher expenses, with net income falling 4.3% year over year to $8.2 billion. Free cash flow continued to remain strong at $9.3 billion and is on track to surpass the 2023 level of $17.9 billion. With inflation falling over the past year, Home Depot should see spending growth moderate, which will ease the pressure on its bottom line.

The business should also see further growth with Home Depot acquiring SRS Distribution, a specialty residential commercial distribution company, in March 2024 for approximately $18.25 billion. This should allow Home Depot to expand its offerings to better serve renovators and remodelers, and will add $50 billion to the company’s total addressable market, bringing it to $1 trillion. Although the transaction will be primarily debt-financed and will be accretive to earnings per share in the first year, management expects the acquisition to be accretive to earnings beginning in the second year.

Meanwhile, Home Depot opened four new distribution centers earlier this year to further expand its ecosystem in Detroit, South Los Angeles, San Antonio and Toronto. These new centers will improve accessibility for their customers who need to access large and bulky goods and increase the company’s appeal while cementing customer loyalty.

3. Nordson

Nordson (NDSN 3.33%) is a precision technology company providing applications in the consumer, medical, electronics and industrial sectors. The business has an excellent track record of paying growing dividends and is one of the few dividend kings out there. Nordson recently raised its quarterly dividend by 15% year-to-date to $0.78 from $0.68, marking its 61st consecutive dividend increase and giving the company one of its longest uninterrupted streaks of increases.

The company has shown steady improvements in both revenue and net income over the years. Sales rose from $2.4 billion in 2021 to $2.6 billion in 2023, while net income rose from $454.4 million to $487.5 million over the same period. Free cash flow averaged $525 million per year between 2021 and 2023, and Nordson’s dividend payout ratio rose from just 22% to 31% over that period, which explains why the company could continue to pay more.

In the first half of 2024, Nordson continued its free cash flow generation of $273 million. Half-year net income fell 1.7% year-on-year to $227.8m, despite a 1.8% rise in revenue year-on-year as finance charges more than doubled .

Despite this, the company only pays out 40% of its earnings as dividends if we use the most recent annualized earnings per share of $7.90 and compare it to the annualized dividend per share of $3.12. This simple calculation shows that the business still has plenty of room to raise dividends and still reinvest most of its earnings for growth.

Nordson is also growing its business through acquisitions, with the acquisition of ARAG closing last August and helping to expand the company’s reach into the high-growth precision agriculture sector. In May of this year, Nordson acquired Atrion Corporation for approximately $800 million to expand its medical portfolio into new markets and therapies. The acquisition is complementary to Nordson’s customer base and should contribute positively to its results going forward.

With these growth drivers in place, Nordson appears well-positioned to continue growing its earnings, free cash flow and dividend well into the future.