Dividend-paying stocks can pack a powerful one-two punch. They generate passive income and can deliver stock price appreciation. Historically, dividend payers have produced a 9.6% average annual total return, according to data from Hartford Funds and Ned Davis Research. That has outperformed the total return of the S&P 500 equal-weighted index (8.2% average annual total return). 

Companies that routinely increase their dividend payments have produced even more powerful total returns. They've averaged 10.7%, compared to a 7.1% average annual total return from companies with no change in their dividend policy. 

Two companies with great track records of producing growing dividend income and achieving high total returns are Blackstone (BX 2.14%) and Brookfield Renewable (BEPC 0.42%) (BEP 0.07%). With more growth ahead, they stand out as top stocks to buy for those seeking income and upside potential.

The leader should only grow larger

Blackstone has a unique dividend policy. The leading alternative asset manager returns almost all its distributable earnings to investors each year through dividends (the primary return method) and share repurchases. While that framework causes the company's dividend payments to ebb and flow with its earnings, the payout has risen sharply over the years, driven by earnings growth:

A chart showing Blackstone's dividends per share over the past 10 years.

Data source: Blackstone. Chart by author. 

Over the last decade, Blackstone has grown its distributable earnings at a more than 20% annual pace. That's helped drive a nearly 700% increase in the company's annual dividend outlay over the last 10 years.

This earnings and dividend growth combination has enabled Blackstone to achieve a 21.8% average annual total return over the past decade. That has significantly outpaced the S&P 500's 11.8% average annual total return. 

Blackstone should be able to continue growing its earnings and dividend at above-average rates. While the company is already the largest alternative asset manager, with over $975 billion of assets under management (AUM), the industry is growing briskly. Preqin, a leading data and insights provider for the alternative investment industry, sees global alternative AUM topping $18 trillion by 2027, nearly doubling its 2021 total of $9.3 trillion.

Given Blackstone's brand reputation, it should capture an outsized share of the industry's growth. That positions the company to grow its earnings and dividend (which yields over 5%, based on its dividend payment over the last 12 months) at an above-average pace. 

Plugged into a powerful growth tailwind

Brookfield Renewable has a much steadier dividend growth track record. The leading global renewable energy producer has increased its payout by at least a 5% annual rate since 2011. That growing payout has helped power Brookfield's 16% annualized average total return since its inception. This rate has significantly outpaced the S&P 500's 7% average annual total return during that time.

The company should have plenty of power to continue growing its dividend, which yields an attractive 4.4%. Brookfield has multiple catalysts to drive earnings growth over the next several years, including: 

  • Inflation: Brookfield sells its electricity under long-term, fixed-rate power purchase agreements. Most contracts feature annual rate escalation clauses tied to inflation. This driver should add 2% to 3% of its funds from operations (FFO) per share each year.
  • Margin enhancement: Higher power prices should enable the company to lock in better rates as existing PPAs expire. Brookfield sees improving margins, growing its FFO per share by another 2% to 4% per year.
  • Development pipeline: Brookfield has over 110 gigawatts of renewable energy projects under development (enough to power every home in Canada for a year). These projects should add 3% to 5% annually to FFO per share.
  • Acquisitions: Brookfield has a long history of completing value-enhancing deals. It sees an up to 9% annual boost from acquisitions.

These catalysts should drive 7% to more than 20% annual FFO growth over the next several years. That easily supports Brookfield's plan to grow the dividend by a 5% to 9% yearly rate.

Positioned to potentially produce prodigious total returns

Blackstone and Brookfield Renewable pay dividends that yield more than double those of the S&P 500 (1.7%). That provides investors with a nice income stream. In addition, they have significant growth potential. That should enable them to continue growing their dividends while delivering attractive share price appreciation. 

All this means they could produce considerable total returns over the coming years, making them top stocks to buy for income and upside potential.