Most dividend stocks tend to be slower growing. They often pay dividends because they lack compelling reinvestment opportunities for their cash.
However, some dividend stocks break that mold by offering a high dividend yield and above-average growth prospects. Three companies that combine income with upside are Brookfield Renewable (BEP -2.12%) (BEPC -2.11%), Brookfield Infrastructure (BIP -1.65%) (BIPC -1.91%), and NextEra Energy Partners (NEP 0.37%). Because of that, this trio has the fuel to produce market-crushing total returns in the coming years.
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A high-powered growth engine
Brookfield Renewable is a global leader in renewable energy. The company operates a diversified portfolio of renewable energy-generating facilities that sell their power to end-users like utilities under long-term, fixed-rate contracts. That enables the company to collect a steady stream of cash flow. It returns a portion of that cash to investors via a dividend that currently yields about 3%, more than double the S&P 500's average.
Brookfield's existing portfolio alone is on track to grow its FFO (funds from operations) per share by 3% to 6% per year through at least 2025. Powering that projection is a combination of inflation-related rate increases on its existing contracts, higher power rates as legacy agreements expire, and its ability to reduce costs. Meanwhile, the company also expects its investments in new renewable development projects to add another 3% to 5% to its FFO per share each year, funded by retained cash flow and its top-tier balance sheet. Finally, Brookfield believes that future acquisitions will add up to 9% of additional annual FFO per share. Add it all up, and Brookfield could grow FFO by as much as 20% per share each year through 2025. That forecast suggests it can easily support its plan to increase its dividend at a 5% to 9% annual rate.
Lots of fuel sources
Brookfield Renewable's sibling Brookfield Infrastructure is a global leader in operating critical infrastructure businesses. It's one of the largest owners and operators of infrastructure networks that support the movement and storage of energy, water, freight, passengers, and data. Most of these businesses generate relatively steady cash flow backed by long-term, fixed-rate contracts. That gives it the cash flow to maintain a nearly 3.8%-yielding dividend.
Brookfield believes it can organically grow its FFO per share by 6% to 9% per year. Several catalysts fuel that forecast, including inflation-linked contract rate increases, cost-saving initiatives, volume growth as the global economy expands, and expansion projects. On top of that, Brookfield believes that future acquisitions can add another 1% to 5% to its FFO per share each year, financed mainly through the sale of slower-growing mature assets. The company is already working on its next deal. That's up to 14% annual growth over the next several years. This outlook has Brookfield well on track with its plan to increase its dividend by 5% to 9% per year.
A super-charged dividend growth plan
NextEra Energy Partners operates a fast-growing clean energy business. It owns a portfolio of natural gas pipelines, wind farms, and solar energy-generating facilities backed by long-term, fixed-rate contracts. Those agreements supply it with relatively steady cash flow to support its 3.4%-yielding dividend.
The company expects to grow that already attractive payout at a 12% to 15% annual rate through at least 2024. Powering that plan is the company's ability to acquire additional clean energy assets. The main deal source is its parent, utility giant NextEra Energy, though the company also anticipates completing transactions with third-party sellers. NextEra Energy Partners expects to finance future deals by combining retained cash flow after paying its dividend with creative financing structures sourced from institutional investors.
Having your proverbial cake and eating it too
Brookfield Renewable, Brookfield Infrastructure, and NextEra Energy aren't your average dividend stocks. This trio offers high yields along with high growth potential. That one-two punch should enable them to generate market-beating total returns in the coming years, making them ideal dividend stocks for any portfolio.
