Safe Dividend Stocks: Growth Potential in Home Depot, UnitedHealth & NextEra

The Importance of Dividend Income for Long-Term Investors

Dividend income can be extremely valuable for long-term investors, helping to bolster overall returns from a stock. However, simply chasing high-yielding stocks isn't always the best or safest approach, as those payouts aren't consistently sustainable. A better strategy may be to focus on safe dividend stocks with above-average yields that have also been increasing their dividends at a good pace, backed by strong financials that support future payout increases.

Three Stocks Worth Considering

Three stocks that meet these criteria and have increased their dividend payments by at least 50% over the past five years are Home Depot (HD -0.45%), UnitedHealth Group (UNH -0.20%), and NextEra Energy (NEE 1.38%). Here's a closer look at each of these stocks and why they could be excellent options for your long-term portfolio.

1. Home Depot

Home Depot stock yields about 2.2% currently, which is higher than the S&P 500 average of 1.2%. However, the real draw for holding this retail stock lies in its potential for dividend growth over the years. The company has consistently increased its payout, with the current quarterly dividend of $2.30 reflecting a 53% increase from the $1.50 paid to shareholders back in 2020. Even with these substantial increases, Home Depot maintains a modest payout ratio of around 62%, indicating capacity for further increases in the future. Despite facing challenging economic conditions with consumer spending slowing, the retailer still projects comparable sales growth of 1% for the current fiscal year (ending in January). With a strong brand, sound financials, and an impressive dividend track record, Home Depot can be an ideal buy-and-hold stock for the long term. Factors like housing market trends and home improvement spending habits should be considered when evaluating this stock.

2. UnitedHealth Group

Prior to its recent challenges, UnitedHealth Group was not typically known for its high yield. However, with the stock experiencing a decline of over 35% due to rising medical costs and growth concerns, it has been in a downward trend for much of the year. While news of Warren Buffett's investment provided a modest boost, the stock remains significantly down. Currently, it yields 2.8%, which is still above the S&P 500 average. Its dividend growth is particularly noteworthy. Investors receive $2.21 per share each quarter, a 77% increase compared to the $1.25 paid back in 2020. The company's uncertain outlook might deter investors from relying on its dividend, but UnitedHealth's payout ratio remains low at 37%, providing ample room for continued dividend payments and increases. Factors like healthcare policy changes and the aging population can impact UnitedHealth's performance. Despite concerns, UnitedHealth's business remains robust. In the first six months of the year, earnings from operations totaled $14.3 billion, a 10% decrease year-over-year. While this is a setback, the health insurer's financial position is strong and expected to improve as utilization rates decline. Overall, the stock is less risky than it may appear.

3. NextEra Energy

NextEra Energy is another compelling dividend growth stock. As a leading electrical power and infrastructure company in North America, it provides electricity to millions of customers. The stability and consistency of the utility business make it well-suited for dividend investments due to its high predictability. With a yield of approximately 3.3%, NextEra offers the highest yield among the stocks on this list. The company currently pays shareholders a quarterly dividend of around $0.57 per share, which is 62% higher than the $0.35 paid five years ago. A payout ratio of 75% indicates no immediate concerns about dividend safety. Utility companies typically distribute a significant portion of their earnings as dividends, making recurring income a key investment rationale. Regulatory changes and renewable energy adoption are key factors to watch for this sector. During its most recent quarter, ending June 30, operating revenue totaled $6.7 billion, a 10% year-over-year increase. Operating income of $1.9 billion also grew by 14% compared to the previous year. Considering its overall stability and solid growth, NextEra can be an excellent dividend stock to hold for the long term.