One of the most difficult positions to be in when saving for your retirement is being self-employed. You no longer have the assistance of a company to help contribute to your fund. No 401(k) to match and make your retirement a bit more comfortable. Thus, it would behoove such individuals who have decided to stop working for “The Man” and build something of their own to take a much more reasonable and cautious approach to the matter. You want to focus your time and attention on making investments that will help grow your fund over the long haul.
This is why Mat DiLallo of The Motley Fool says that he places most of his attention and time on investing in dividend stocks. DiLallo goes on to say in a recent article syndicated by Yahoo that these kind of investments have been proven to be major wealth creators.
Over the past 50 years, the average dividend stock in the S&P 500 has delivered a 9.1% average annual total return, outpacing the 7.7% return of an equal-weighted S&P 500 Index. Meanwhile, dividend growers and initiators have delivered even higher total returns of 10.2%. That data has given me the confidence to load my retirement portfolio with dividend growth stocks.
I plan to add several more dividend growers to my retirement account this April, including Chevron(NYSE: CVX) and Rexford IndustrialRealty(NYSE: REXR). Here’s why I believe they’ll help build my retirement nest egg.
Chevron has been one of the more durable dividend growers over the decades. The oil giant delivered its 37th consecutive annual dividend increase in 2024, raising its payout by 8%. That continued its recent trend of delivering above-average dividend growth. Over the past five years, Chevron has grown its dividend faster than the S&P 500 and more than twice the rate of its closest peer in the oil patch.
The good news about investing in Chevron is that it has a whole lot of steam going right now so it should be able to keep on increasing its payout at an above-average pace for the next several years. The reason for this is that Chevron has been focusing on investing in the company’s highest-return opportunities. The laser-focus on returns is what continues to drive its view that it can keep growing its free cash flow by over 10 percent a year all the way through 2027 at $60 oil.
“That’s enough money to fund its capital program, grow its dividend, and repurchase shares at the low end of its $10 billion-$20 billion annual range. Meanwhile, Chevron has several upside catalysts, including higher oil prices and its pending acquisition of Hess. That roughly $60 billion deal would more than double its free cash flow by 2027 at $70 oil while extending its growth outlook into the 2030s,” DiLallo wrote.
“Rexford Industrial Realty is an industrial REIT focused on supply constrained markets in Southern California. That regional focus has paid big dividends for its investors over the years. The REIT has increased its funds from operations (FFO) at a 16% compound annual pace over the past five years, versus 11% for its peers, driven by rent growth and acquisitions. Those drivers have allowed it to grow its dividend at a blistering 18% average annual pace, compared wiith 10% annually by its peers,” the investor added.
The REIT also recently took advantage of an amazing opportunity that presented itself to acquire a billion dollars in industrial assets from some real estate funds that are being managed by Blackstone. DiLallo noted that the deal will add 3 million square feet of very well located, extremely high-quality assets all over Southern California to its investment portfolio.
According to DiLallo, “That acquisition brought its investment total to $1.4 billion this year. With a fortress-like balance sheet even after that sizable deal, Rexford has the financial flexibility to continue making new investments.”
“That transaction adds to the company’s already strong internal growth profile. It expects rising rents and other catalysts to add $240 million in incremental net operating income over the next three years, a 42% increase by the end of 2026. These internal and external catalysts should enable the REIT to continue growing its dividend at a strong pace,” he wrote in the article.
Both REIT and Chevron have already made good on delivering well above-average dividend growth over the last few years. With how good the outlook seems for the future, that pattern looks to keep on going.