Getting paid a high rate to invest in a stock all the while enjoying exceptional growth opportunities is not to be taken lightly. Oftentimes, stocks with high dividend yields come with a lot of risk relative to the return.
Brookfield Renewable Partners (BEP +0.03%), Digital Realty Trust (DLR 0.06%), and Cedar Fair (FUN +0.00%) are three high-yield growth stocks that seem to have avoided that dangerous outcome. Here's why, according to our Foolish investors, they should be considered for your portfolio.
Image source: Getty Images.
A hidden hydro dividend
Travis Hoium (Brookfield Renewable Partners): Hydroelectric dams aren't exactly the most exciting business in the world, but they can be extremely lucrative for long-term investors in a company like Brookfield Renewable Partners. The company's portfolio consists of 85% hydro plants, with most of the remaining assets in international wind projects.
The cash flows coming from these plants are fairly consistent and are used to pay a dividend that has a current yield of 5.5%. Any excess cash can be used to acquire growth assets, which is really what drives the company long-term.
Unlike most yieldcos, Brookfield Renewable Partners isn't looking to sell new shares to fund acquisitions. It aims to acquire organic growth assets and only increase its dividend payout 5% to 9% per year, compared with a 12% to 15% goal for most yieldcos. It hopes the total return for the stock is 12% to 15%, with appreciation of the share price long-term.
The advantage of growing organically is that it puts less pressure on a company's stock price. Under the traditional yieldco model, a low stock price and high dividend yield make it difficult to buy projects and grow the dividend. Brookfield Renewable Partners doesn't run that risk because it's growing organically and still has a 5.5% dividend yield that will grow steadily for investors.
An invisible tech winner
Brian Feroldi (Digital Realty Trust): Do you ever wonder where all of the data that you consume every day is stored? The answer is likely inside a huge data center that's located close to where you live. However, most businesses lack the resources, scale, and know-how to build and maintain their own network of data centers. That's why many of them turn to companies like Digital Realty Trust for help.
Digital Realty Trust is a real estate investment trust (REIT) that is one of the largest owners and operators of data centers worldwide. The company owns 157 properties that are located in 12 countries. These properties offer plug-and-play solutions for any company that wants to make their data accessible to consumers, suppliers, and employees everywhere in an instant. Digital Realty provides its customers with nearly all of the physical inputs that it needs to get started -- a secure building, power system, cooling, network connections -- while the companies themselves supply the servers and data.
Our collective insatiable demand for bandwidth has caused demand for server space to rise for years. That's a trend that Digital Realty has happily capitalized on. Revenue and profit have grown like clockwork for more than a decade, which has allowed the company to pass along an ever-growing dividend payment to its shareholders.
DLR Revenue (TTM) data by YCharts
Looking ahead, global internet traffic is projected to grow at a compound annual growth rate of 24% between 2016 and 2021 thanks to exploding demand for video, mobile, and cloud computing. That provides Digital Realty with a strong tailwind that should ensure that revenue and profits continue to head in the right direction.
Turning to the dividend, Digital Realty offers investors as a current yield of 3%. That might not sound like much, but the dividend only consumes about half of funds from operations -- which is a REIT proxy for earnings -- and the company's growth rate should remain strong for years to come.
If you're looking for an above-average yield and growth, I think Digital Realty is a great choice.
Image source: Getty Images.
Fun for everyone
Rich Duprey (Cedar Fair): Where hydroelectric power plants and data centers are boring businesses, running amusement theme parks is downright fun and exciting. Cedar Fair just so happens to be one of the premier operators in the country, and with a dividend currently yielding 5.4%, it's a stock that makes it a compelling investment.
With a lot riding on the outcome, Cedar Fair just reported record net revenue for the third quarter of $653 million, as it was able to drive increased attendance at its parks as well as have customers spend more while they were there -- so much so, in fact, that management agreed to raise the fourth-quarter distribution by 4% as it sees itself producing more than sufficient cash flows to not only maintain the payout but increase it in the future, too.
It continuously upgrades its parks, and it credits in part the addition of a classic wooden roller coaster at its Kings Island park for its better showing. It's also engaging in an upgrade program at its water parks to boost attendance and adding a new indoor sports complex at Cedar Point to help increase off-season revenue.
Analysts expect Cedar Fair to increase earnings 23% next year. While the CEO will retire at the end of the year, its new executive is a longtime one at the company, so there aren't expected to be any thrills or chills during the transition. Expect to see this high-yielding stock continue growing in the future.
