Dividend-paying stocks are proven moneymakers. Over the last 50 years, the dividend payers in the S&P 500 have delivered an average annual total return of 9.2%, according to data from Ned Davis Research and Hartford Funds. That has outperformed an equal-weighed S&P 500 index (7.7% average annual return).
Dividend initiators and growers have produced even higher total returns (10.2% annualized). That's roughly the rate an investor needs to double their money in seven years using the rule of 72. The simple formula divides 72 by the expected rate of return to determine how long it would take for an investment to double in value at that level of return. In the case of dividend growth stocks, it would take about seven years to double an investor's money (72/10.2=7).
Brookfield Asset Management (BAM -0.54%), Crown Castle (CCI -1.29%), and Enbridge (ENB 1.68%) are three dividend growth stocks with a high probability of delivering the double-digit annual returns needed to double their investor's money by 2030.
High-yielding and fast-growing
Brookfield Asset Management's dividend yields 4.1%. That's more than double the 1.7% dividend yield of an S&P 500 Index Fund, providing investors with a nice base return.
The other side of the coin is the company's expected earnings growth. Brookfield Asset Management forecasts its fee-related earnings will grow 15% to 20% annually over the next several years. The company has lots of visibility into future growth from the alternative investment funds it has raised. The company's investors have committed $37 billion of capital not currently earning management fees. This capital represents $370 million of future fee-earning revenue for the company as it deploys it into new investments.
Meanwhile, Brookfield is raising money across all its flagship funds and launching new strategies. The company recently launched an innovative new infrastructure income product for high-net-worth investors and its second Global Transition Fund, which it expects will be even bigger than the first fund. As the company raises and deploys this capital, it will help drive fee-related earnings growth. Brookfield's fee income has risen 22% over the past year.
Brookfield expects to grow its dividend along with fee-related earnings, implying it can increase its already above-average payout at a more than 15% annual rate in the future. The company's high yield and growth combination positions it to produce double-digit annual returns in the coming years.
The towering dividend should continue rising
Crown Castle currently pays a 5.6% dividend yield. That gives investors a very generous base return. The company set a long-term target of growing its payout at a 7% to 8% annual rate.
The communications infrastructure REIT expects dividend growth to be below that trend through 2025 as it navigates the headwinds of higher interest rates and lease cancellations following the merger of two major tenants. However, it anticipates growth will reaccelerate in the longer term, driven by 5G.
Crown Castle believes U.S. mobile carriers will need more tower space to handle additional equipment as they expand their networks. In addition, it expects to deploy thousands of small cell nodes along its fiber optic network to support rising mobile data usage. These drivers will grow its rental income, giving it more money to increase its already high-yielding dividend. Given its sizable payout, the company doesn't need to grow fast to achieve a double-digit annualized return.
Ample fuel to grow its big-time dividend
Enbridge's dividend currently clocks in at 7.1%. That gives investors in the pipeline company a very strong base return.
Enbridge generates very stable cash flow to support that dividend, backed by long-term contracts and government-regulated rate structures. Meanwhile, it pays out a reasonable portion of that steady cash flow (60%-70%) via the dividend. That enables it to retain billions of dollars annually to fund its continued expansion.
The company has a multi-billion-dollar expansion program underway, giving it lots of visibility into future growth. It expects its distributable cash flow per share will rise at a 3% compound annual rate through 2025 as modest headwinds from tax legislation slightly slow its pace in the near term. However, it expects earnings growth of around 5% annually after 2025, fueled by its extensive and growing capital project backlog. Projects include natural gas pipeline expansions, renewable energy developments, and new energy investments like renewable natural gas and lower carbon fuels.
Enbridge's growing earnings should fuel steady dividend increases. The company has given its investors a raise for 28 straight years. It sees future dividend growth of up to 5% per share each year in the medium term. Given its already sizable dividend, that modest growth rate should help fuel total returns in the double digits.
High yields and healthy growth could produce powerful total returns
Companies that consistently increase their dividends have historically produced a more than 10% average annual return, roughly the rate needed to double an investment in about seven years. Brookfield Asset Management, Crown Castle, and Enbridge appear well-positioned to deliver double-digit annual returns in the coming years, given their above-average yields and visible earnings and dividend growth profiles. There's a high probability that they could double their investor's money by the end of this decade.
