Many investors focus their portfolios on either growth stocks (if they're a long way from retirement) or income stocks (if they're nearing or in retirement). However, the sweet spot of investing is somewhere in the middle since companies that pay a growing dividend have historically outperformed both their non-paying peers as well as those that don't tend to increase it that frequently.
Because of that, it makes sense for investors both near and far from retirement to have a couple of dividend growers in their portfolio. Here are two that offer an abundance of both growth and income.
High total returns from a clean cash-flow stream
NextEra Energy Partners (NYSE:NEP) operates and manages energy assets that have a cleaner profile, such as natural gas pipelines and wind and solar power-generating facilities. The other common denominator is that the company secured long-term contracts for the power these assets produce as well as the capacity of its pipelines, which provides it with relatively steady cash flow. That gives it money with which to pay a lucrative distribution that currently yields 4%.
The company has increased that payout at a fast pace over the years, including 15% in 2017. NextEra Energy Partners expects that to continue in those to come, with it currently planning to grow the dividend at a 12% to 15% annual pace through 2022. Powering that growth will be a combination of acquisitions both from its parent company NextEra Energy (NYSE:NEE) and third parties, as well as organic expansion projects. Although, drop-down transactions from NextEra Energy's vast portfolio of renewable assets alone can easily support the company's growth forecast. Because of that, investors have the opportunity to earn total annual returns in the 16% to 19% range when adding the distribution growth rate to the current yield. That outlook positions NextEra Energy Partners to continue delivering market-beating returns, which is something it has done since NextEra took it public in 2014.
High-octane growth ahead
Noble Midstream Partners (NYSE:NBLX) operates more traditional energy assets such as oil and gas pipelines and related infrastructure. Long-term contracts also underpin Noble Midstream's assets, providing it with a predictable cash flow stream. That money currently supports the company's 4.4% yielding distribution.
Noble Midstream has only been a public company for about a year and a half. However, it has delivered top-tier total returns since then, fueled by its fast-growing distribution, which it increased 24% over the past year. There's more fast-paced growth coming down the pipeline. While the company initially anticipated that it could increase its payout at a 20% compound annual rate through 2020, a trio of needle-moving acquisitions last year extended that outlook through 2022. The company hopes to push that out even further this year while maintaining healthy dividend coverage and low leverage ratios along the way. That forecast potentially positions investors to earn total annual returns of close to 25% over the next few years, assuming no change in the company's valuation multiple, of course, which could crush the market's return.
The formula to outperform
With yields above 4%, NextEra Energy Partners and Noble Midstream Partners would certainly satisfy income seekers. Likewise, their double-digit growth rates for at least the next five years would appeal to growth-focused investors. However, it's when we combine the two that things get compelling, because it implies that these companies could deliver total returns that easily beat the market, which is just what they've done since their IPOs.