You don't have to invest a lot of money to build a nice retirement nest egg. For example, investing as little as $300 a month could grow into more than $1 million in about 30 years, assuming a 12% annual return. That's slightly higher than the stock market's average return of almost 11% over the last 50 years.
The key is to buy compounding machines, stocks that should steadily produce above-average total returns for years to come. Three that stand out as having the potential of generating double-digit total annual returns are Brookfield Renewable (BEPC 1.16%) (BEP 1.20%), Realty Income (O 0.95%), and Switch (SWCH). Investing a few hundred dollars in each right now could yield big gains in the coming years.
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A leader in the renewable-energy megatrend
The global economy needs to invest a fortune to reduce its reliance on carbon-emitting fossil fuels and stem the impact of climate change. One estimate suggests a more than $150 trillion investment to fully decarbonize the global economy over the next three decades.
That forecast is great news for Brookfield Renewable, a global leader in renewable energy. It has one of the largest portfolios of renewable-energy assets and an even larger backlog of development projects. That development pipeline gives it a clear line of sight to grow its cash flow per share at a 6% to 11% annual rate through at least 2026. Meanwhile, the company believes it can boost its bottom line by up to another 9% per year through M&A activities. That's up to 20% annual growth in the near term.
Add in Brookfield's 3.5%-yielding dividend, and it's easy to project double-digit total annualized returns in the coming years. That would keep up with its historical track record of success as Brookfield has produced 18% total annualized returns over the past two decades.
A massive opportunity set
There's an estimated $12 trillion of owner-occupied retail and industrial real estate in the U.S. and Europe. That's an enormous market opportunity for Realty Income, a real estate investment trust (REIT) focused on buying these types of properties. The company is on track to acquire more than $5 billion of real estate in 2021, not including its needle-moving merger with VEREIT. Those deals position it to grow its cash flow per share by 9.2% in 2022 at the midpoint of its guidance range.
Realty Income's steady acquisition-driven growth has produced impressive returns over the years. The REIT has delivered a 15.1% compound annual total return since its public listing in 1994, driven by steady cash flow and dividend growth. The company has increased its dividend, which yields 4.4%, 114 times since coming public. With one of the best balance sheets in the REIT sector, Realty Income has the financial flexibility to continue growing its portfolio. Combine its attractive yield with an enormous growth opportunity, and Realty Income looks as if it can continue producing market-beating total returns in the years ahead.
Switching structures to drive its next growth phase
Switch is a data center operator focused on building and operating large-scale, technologically advanced facilities. The company is currently becoming a data center REIT, which should improve its access to capital. That should enhance its ability to grow in the rapidly expanding data infrastructure market.
Switch sees significant growth potential over the coming years. The company currently has several data center expansion projects underway and many more planned. These expansions have it on track to grow its adjusted funds from operations at a more than 12% compound annual rate through 2026. Meanwhile, the company has enough room at its existing locations to grow at a double-digit annual rate over the next decade. That could give Switch the power to produce double-digital total annualized returns over the coming years.
A high probability of being long-term winners
Brookfield Renewable, Realty Income, and Switch have enormous growth potential and look as if they could produce above-average total returns in the coming years. That makes them seem like smart bets for those with a few hundred dollars to invest right now.
