3 Dividend Stocks to Fund Your Nest Egg

A hand placing coins on stacks of increasing height.

Watching one of your stocks go up in value is nice. Receiving an ever-growing dividend payment every quarter, just for owning the thing, is even better. If you’re trying to grow your nest egg, dividend stocks can provide the fuel.

We asked three of our Foolish investors to each discuss a dividend stock perfectly suited to grow your nest egg. Here’s why American Tower (NYSE: AMT), Cisco Systems (NASDAQ: CSCO), and MGM Growth Properties (NYSE: MGP) are great fits.

Data use is here to stay, and so is the infrastructure to deliver it

Tyler Crowe (American Tower): Somewhere along the way, data usage became as much of a necessity in our everyday lives as other basic needs — so much so that we may need to add a new level to Maslow’s hierarchy of needs. It’s almost unreal to think of the monumental change smartphones have had over the past 15 years. Today, according to the Organisation for Economic Co-operation and Development, customers in the U.S. use about 2.7 gigabytes of data a month on their mobile devices, and that may just be the beginning. With faster internet speeds and more connected devices, total data is expected to grow fivefold by 2021 in just about every global market.

Handling all that traffic on wireless networks takes an incredible amount of infrastructure, which of course needs to be installed somewhere. That’s where American Tower comes in, and that’s why its assets are probably going to be so valuable in the coming years.

American Tower is a real estate investment trust that owns towers and other real estate assets from which telecommunication companies can rent space for their network equipment. For telecommunications companies, it means they don’t need to deploy as much capital to increase coverage or network speed. American Tower, meanwhile, can lease out space to multiple carriers at the same location. This has been an incredibly lucrative business, as the company grew revenue and available funds from operations by 16% annually over the past decade.

Replicating that kind of growth will be hard, but the company has its sights set on international markets where the use of phones is high, but broadband penetration is still lagging behind. Markets like this — India, Nigeria, and Mexico, to name a few — have incredible growth ahead of them that management expects will deliver better than double-digit growth for the next decade. If you are looking for a stock that will deliver long-term dividend growth to fuel your nest egg, American Tower is a great place to start.

Capital return on steroids

Tim Green (Cisco Systems): Cisco, a provider of enterprise networking hardware like switches and routers, only began paying a dividend in 2011. But that dividend has grown rapidly since then, and today Cisco is a solid dividend stock worthy of your portfolio.

Cisco boosted its quarterly dividend by 14% in February, when it announced its fiscal second-quarter results. The new $0.33-per-share dividend is good for a yield of about 3%. On top of the dividend, Cisco plans to plow cash into buying back its own shares. The company increased its buyback authorization by $25 billion, the result of the U.S tax bill. Cisco is returning a tremendous amount of cash to shareholders.

This comes at a time when Cisco’s performance is starting to turn around. After two years of slumping revenue, in part resulting from a shift toward subscriptions and recurring revenue, Cisco reported growth in the second quarter. Recurring revenue reached one-third of total revenue, and that number should continue to rise.

Cisco will be showering its shareholders with cash over the next couple of years. Make sure you’re one of them.

Betting on gaming’s growth

Rich Duprey (MGM Growth Properties): MGM Growth Properties is the real estate investment trust that owns the casinos of MGM Resorts (NYSE: MGM). Investors typically like REITs like MGM because of their unique tax advantages that require the entities to distribute at least 90% of their income to their shareholders. MGM Growth Properties is slightly different from other REITs because it is what’s known as a triple net lease.

A triple net lease is an arrangement in which properties are sold to the REIT, but the tenants — in this case, the casino operators — are responsible for paying all real estate taxes, building insurance, and maintenance costs on the properties.

Although gaming REITs are becoming more commonplace, MGM is trying something few others in the industry have done, and that’s to acquire the casinos of Caesars Entertainment (NASDAQ: CZR), an ailing casino operator that is trying instead to spin off VICI Properties, the REIT that currently owns them. MGM Growth has offered to pay $19.50 per share but has so far been rebuffed. If the two REITs merged, it would create one of the largest triple net lease REITs, covering 32 casinos and four racetracks.

As noted, it’s rare in the industry to own a competitor’s real estate, but not unheard of, as Gaming & Leisure Properties owns the casinos of both Penn National Gaming and Pinnacle Entertainment.

Casino gaming continues to be a growth market, particularly for world-class operators like MGM Resorts. With the REIT paying a dividend that currently yields 6.5%, it represents a lucrative bet that gambling will continue to pay off.

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