Dividend stocks have historically been great wealth creators. They often produce higher returns with less volatility than companies that don't pay dividends. That's because the dividend income provides a steady return in good times and bad.
That dividend income can add up over time. For example, a stock with a dividend yield of at least 7.25% will throw off enough income over a decade to double an investor's money. While dividend yields that high are often riskier, several companies currently offering ultra-high dividend yields should be able to maintain them over the coming decade. Arbor Realty Trust (ABR 12.16%) and Enterprise Products Partners (EPD +0.69%) are two such companies.
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A big-time dividend backed by mortgages
Arbor Realty Trust is a real estate investment trust (REIT) focused on mortgages primarily backed by multifamily properties. Because it's a REIT, Arbor must distribute 90% of its taxable net income to investors each year. That's why it has a high dividend yield, which currently clocks in at 8.4%. If it can maintain that payout, the mortgage REIT could double an investor's money in about eight and a half years, assuming no change in its stock price or dividend rate.
Arbor has done much better than maintaining its dividend over the years. It has increased its payout in six straight quarters, boosting it by 20% over that timeframe. That added to its long history of dividend increases, which have helped the mortgage REIT deliver a more than 700% total return over the last decade.
The REIT should be able to continue paying a big-time dividend in the coming years. It owns a growing portfolio of commercial real estate loans secured by multifamily properties, single-family rental homes, and other property types. This real estate tends to be fairly stable, reducing the risk of loss. Meanwhile, it has a growing number of funding sources, giving it the flexibility to keep expanding its mortgage portfolio. With demand for housing on the rise, Arbor should be able to continue finding attractive loans to fund.
A well-oiled dividend machine
Enterprise Products Partners is a master limited partnership (MLP) focused on energy infrastructure. Like REITs, MLPs must distribute 90% of their income to maintain their tax advantages. That requirement is why Enterprise offers a big-time dividend yield currently over 7.5%. At that rate, Enterprise would double an investor's money in about nine and a half years. Again, that assumes no payout increase or price appreciation.
However, the MLP has a long history of growing its distribution. Enterprise Products Partners has increased its payout by 3.3% over the past year. That pushed its growth streak to 23 straight years.
Enterprise Products Partners should have plenty of fuel to continue growing its dividend in the future. The MLP recently spent $3.25 billion to acquire Navitas Midstream Partners, which will expand its presence in the fast-growing Permian Basin. In addition to that, it has $2.2 billion of major expansion projects currently under construction, most of which should enter service in 2023 and beyond. These primarily include infrastructure to move cleaner fuels like natural gas or manufacture petrochemicals. It has a strong balance sheet to finance these investments, putting its dividend on rock-solid ground.
While fossil fuel-related infrastructure remains its focus at the moment, Enterprise is working on lower-carbon investment opportunities. The company is looking at areas like hydrogen, carbon sequestration, circular plastics, and renewable fuels. These opportunities could provide the fuel to keep growing its dividend in the coming years.
Slowly grow your wealth with these dividend stocks
Arbor Realty Trust and Enterprise Products Partners only need to maintain their dividends to produce enough income to double an investor's money in under a decade. However, given their history, financial strength, and growth prospects, these companies should be able to continue increasing their payouts in the coming years. That makes them great ways to potentially grow your wealth on income production alone.
