Although dividend stocks are sometimes thought of as investments for income-seekers, the right dividend stocks can produce fantastic long-term growth in your portfolio. In fact, a 5% dividend yield will triple your money every 23 years or so, and that's not including the effects of any growth in the share price. With that in mind, here are three stocks our analysts believe will easily triple your investment and more over the next quarter century.
Thanks to its predictable business model of long-term net leases, Realty Income has managed to create a solid income stream that grows over time. The company has increased its dividend for 70 consecutive quarters, and at an annualized growth rate of about 5%.
Now, Realty Income's current dividend yield of just over 5% will more than triple your investment over the next 25 years, but the reality is that the dividend is just one aspect of this stock. Shareholders also benefit as real estate prices appreciate, and the company's strategic and responsible use of borrowed money (in the form of debt offerings and preferred stock) has enabled it to produce consistent, market beating returns for decades.
In fact, the company has produced an average annual total return -- including share price appreciation and dividends -- of 17.4% over the past 20 years. At this growth rate, Realty Income investors who chose to reinvest their dividends have seen their investments triple every eight years, and increase by more than 2,000% since the company went public just over 20 years ago.
Now, past performance isn't a guarantee of future investment gains, but Realty Income has adhered to the same simple and effective strategy since 1969, and there is no reason to think it'll change anytime soon.
Eric Volkman: My pick for a potential three-bagger is specialty real estate investment trust HCP (NYSE:HCP), currently yielding 6.1%. HCP's niche is healthcare facilities, a fine business to be in just now with the graying of the Baby Boomer generation.
Even before the Boomers entered their retirement years, HCP was spitting out regular dividends. The REIT is a dividend aristocrat, one of the very rare firms that's lifted its payout at least once annually for a minimum of 25 years in a row. HCP's distribution alone has made investors wealthy -- since it was initiated it's risen by over 1,100%.
The timing is particularly good for investing in HCP at the moment. Like many fellow REITs, the share price of HCP has dropped recently. This is due in no small part to fears of an interest rate rise. A hike theoretically hurts REITs because it raises the cost of its funding, while the return on its assets (often secured by long-term leases) remains roughly level, therefore constricting profit.
But HCP has been here before, and managed to thrive. I think the rate concerns are overdone, and the company is a lock to triple its total return, at the very least.
Dan Caplinger: Many investors looking for high dividend yields focus on traditional income-focused investments like real-estate investment trusts, as Matt and Eric discuss above. For those who are open to a riskier prospect, though, casino giant Las Vegas Sands (NYSE:LVS) has jumped into the realm of high-yielding dividend stocks, with its yield of 5.1% suggesting that you could triple your money by 2037 just from dividends alone.
There are two reasons why Las Vegas Sands has seen its yield climb so high. First, the company has been aggressive in paying shareholders more year after year, with three consecutive years of regular dividend increases of 30% or more. Second, Sands' stock has come under pressure, as the economic environment in the Asian gaming capital of Macau has turned ugly, taking away what has been a huge growth driver for Sands and many of its peers in recent years.
In time, though, Sands has potential beyond simply paying out a high dividend. If Macau bounces back, then the stock has plenty of upside to recapture. In addition, other nations in the Asia-Pacific region, including Japan, Korea, and Vietnam, are considering inviting the casino-resort industry within their borders for the first time. That could present a huge growth opportunity that would only add to dividend-fueled gains for long-term investors.