The conventional wisdom is that companies pay dividends because they're no longer able to use the money to fuel growth. Since they can't deliver strong growth, returning cash to shareholders in the form of dividends makes sense. But this view isn't always right.
Innovative Industrial Properties (IIPR -1.82%) and Brookfield Renewable (BEP -5.98%) (BEPC -5.10%) stand out as two examples that clearly defy the conventional wisdom. These dividend stocks aren't just poised for solid growth; they can double your money in under five years.
Looking at the past
We've probably all heard the disclaimer that "past performance is no guarantee of future results." That statement is true. However, it doesn't mean that past performance doesn't at least provide a hint of what a stock is capable of doing in the future.
Innovative Industrial Properties' share price, for example, has nearly tripled in just the past two years. Over the past five years, the cannabis-focused real estate investment trust (REIT) has delivered a return of close to 11x.
Brookfield Renewable is a special case. There are two stocks for the same underlying renewable energy business. The limited partnership (LP), Brookfield Renewable Partners, has traded publicly since 2011 (first on the Toronto Stock Exchange then on the New York Stock Exchange two years later). However, shares of Brookfield Renewable Corporation weren't listed on the NYSE until 2020.
How has the longer-lived Brookfield Renewable stock performed over the past five years? It has soared close to 150%. Most of that gain came in the past three years.
If history is any guide (and it often is), both IIP and Brookfield Renewable have what it takes to double in under five years.
Clear paths to growth
Of course, the factors that led to sizzling performances in the past don't always persist. For IIP and Brookfield Renewable, though, all of the ingredients for growth remain in place.
All IIP needs to double over the next five years are cannabis operators interested in raising real estate capital and access to cash to fund the sale-leaseback transactions. The REIT shouldn't have a difficult time with either prerequisite.
IIP currently owns 107 properties in 19 states. Legal cannabis markets are expanding in all of these states -- and doing so briskly in many of them. There are also another 18 states that have legalized medical cannabis where IIP doesn't currently operate.
Accessing cash to buy properties and lease them back to cannabis operators won't be a big hurdle for IIP, either. The company ended 2021 with $406 million in cash and cash equivalents and short-term investments. It also recently priced a public stock offering to raise an additional $300 million in gross proceeds.
Brookfield Renewable has a clear path to growth as well. The company currently operates hydroelectric, wind, solar, and storage facilities that have a combined capacity of 21 gigawatts. Its pipeline capacity of 62 gigawatts is nearly triple that amount.
The demand for renewable energy is expected to accelerate in the coming years. As a result, Brookfield Renewable projects that it will deliver average annual total returns in the ballpark of 15%. That's enough to enable the stock to double in under five years. I think that Brookfield Renewable ranks as one of the safest growth stocks on the planet.
Dividends are important
We haven't talked about these stocks' dividends yet. Rest assured, though, that their dividends play an important role in the investing propositions for IIP and Brookfield Renewable.
As a REIT, IIP must return at least 90% of its taxable income to shareholders in the form of dividends. Its dividend yield currently stands at 3.6%. The company has increased its dividend by more than 1,000% over the past five years.
Brookfield Renewable's dividend yield is close to 3.1%. The renewable energy leader has increased its distribution by a compound annual growth rate of 6% since 2001. Those distributions make a huge difference for investors over time. For example, while Brookfield Renewable's shares have appreciated roughly 150% over the past five years, the stock delivered a total return of over 230%.
No, IIP and Brookfield Renewable aren't guaranteed to double in under five years. But these companies' track records, growth prospects, and strong dividends make it very possible that they will.