Warren Buffett relishes the dividends he receives from the several dividend-paying stocks that Berkshire Hathaway owns. While stable and growing dividends reflect a company's operational resilience and financial fortitude, Berkshire can reinvest the extra income productively to make even more money. For an individual investor, the supplemental income can even take care of daily expenses or multiply returns from stocks manifold if reinvested.
If you're like Buffett and love dividends, check out these stocks if you don't already own them: Parker-Hannifin (NYSE: PH) , Stanley Black & Decker (NYSE: SWK) , and Realty Income (NYSE: O) .
Overlooking this dividend powerhouse is a big mistake
Parker-Hannifin is a hugely underrated dividend stock , partly because industrials is typically considered a boring sector, and the stock pays only 1.9% in yield. In reality, Parker-Hannifin isn't just any other industrials company -- I'd call it an industrial-technology hybrid.
You see, Parker-Hannifin makes "motion and controls technologies" -- systems and technologies, mostly automated, that help machines of all shapes and sizes to function and move in a controlled manner: Think hydraulics, pneumatics, filtration, fluid and gas systems, and electro-mechanical products. Aerospace and industrials are the two largest markets for the company, but no single customer contributes more than 3% and no single product more than 1% to Parker-Hannifin's sales.
Parker-Hannifin's products can be found in nearly every airplane today. Image source: Getty Images.
If you're wondering why that matters, consider that despite exposure to cyclicals, Parker-Hannifin has been able to increase its dividends every year for 62 consecutive years now. Only a handful of dividend-paying stocks boast a similar record.
What does the future hold, you may ask? Well, the company wants to pay out $2.6 billion in dividends between 2019 and 2023, or more than double the money it has paid in the past three years. You guessed right: Your dividends from Parker-Hannifin will get bigger every year. A major growth catalyst is its acquisition last year of filtration manufacturer CLARCOR, which is expected to add substantial value to the business. There's no denying the growth potential in Parker-Hannifin's dividends, making it a top stock for income investors.
This Dividend King wants to pay you even more
I don't remember when I first bought a Stanley Black & Decker electric drill, but most of the hand tools I've used since belong to the same brand. I'm sure I'm not alone. Otherwise, Stanley Black & Decker wouldn't be the world's leading tools and storage manufacturer, and the second-largest security services company today, selling more than 500,000 products across 50 countries.
Image source: Getty Images.
You'd be surprised to know what a solid dividend growth stock Stanley has been: It has paid a dividend every year for 142 years, and increased it consecutively for 51 years now. That makes Stanley a Dividend King -- a coveted tag only a dozen-odd publicly listed stocks in the U.S. can claim today.
Stanley has grown leaps and bounds through acquisitions in recent years and wants to stick to its strategy: Through 2022, management is targeting compound annual revenue growth of 12%, of which only 4% to 6% is expected to be organic.
Here's the real deal for dividend lovers: Stanley is targeting 10% to 12% growth in earnings per share, and expects to convert 100% of it into free cash flow (FCF) in the long run. With management also committed to returning 50% of that FCF to shareholders in dividends, you can rest assured that owning Stanley shares would mean receiving fatter dividend paychecks year after year, for years to come.
Earn monthly dividends with this low-risk retail investment
Realty Income kicked off the year on a somber note, partly because of rising interest rates and the so-called retail apocalypse. But the stock's recovery in recent months indicates the market sees potential in Realty Income, and rightly so.
As a real estate investment trust (REIT) , Realty Income invests in properties, rents them out, and distributes at least 90% of its taxable income (primarily the rental income it receives) to shareholders as dividends. Realty Income specializes in retail and currently owns nearly 5,300 commercial properties leased out to 254 commercial tenants across 47 industries.
Nondiscretionary businesses like drugstores and convenience stores combined constitute nearly 20% of the company's tenant distribution, and Realty Income's largest tenants include Walgreens , FedEx , Dollar General , LA Fitness, and 7-Eleven. Its occupancy rate is going steady at around 98%.
O data by YCharts .
If a diversified portfolio should help Realty Income ride out the retail storm, its triple-net leases tenant model offers rental security, as contracts have built-in annual rent-increase clauses. Also, property-related variable costs are borne by the tenant. It's a win-win for the company, which reflects in its numbers: Between the stock's listing in 1994 and the end of 2017, Realty Income's revenues and adjusted funds from operations have risen more than 20-fold each.
Realty Income has increased its dividends 96 times since 1994, growing them at an annual compound rate of roughly 4.7%. That's an incredible track record, and with its monthly dividends and its yield of 4.8%, Realty Income should anchor any income portfolio.
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool recommends Berkshire Hathaway (B shares) and FedEx. The Motley Fool has a disclosure policy .