The conventional idea is that firms pay dividends because they are no longer able to use the cash for growth. Because they are unable to provide strong expansion, returning cash to investors in the form of dividends makes sense. However, this view isn’t always accurate.
Brookfield Renewable ( BEP -3.87% ) and Innovative Industrial Properties ( IIPR -2.32% ) are two stocks that buck the trend. These dividend plays aren’t only poised for good growth; the also have the ability to return your investment in less than five years.
Looking at the past
“Past performance is no guarantee of future results” is something we’ve all heard. That’s true. However, it doesn’t negate the fact that past performance does at least give a clue as to what a stock may accomplish in the future.
For example, Innovative Industrial Properties’ stock price has increased by nearly three-fold in just two years. In the last five years, real estate investment trust that is cannabis-focused has given a return of roughly 11x.
Brookfield Renewable is a unique case in that there are two stocks for the same underlying renewable energy firm. Brookfield Renewable Partners, a limited partnership, has been listed on the Toronto Stock Exchange and the New York Stock Exchange since 2011 (two years later on the NYSE). However, Brookfield Renewable Corporation shares weren’t available on the NYSE until 2020.
How has Brookfield Renewable’s longer-lived stock performed over the last five years? It’s increased by around 150 percent. The majority of that increase occurred in the previous three years.
Both IIP and Brookfield Renewable appear to have what it takes to double in less than five years, according to history.
Clear paths to growth
Of course, past hot performances may not always be maintained. However, for IIP and Brookfield Renewable, all of the elements for development are still there.
The need for investment in real estate by cannabis businesses looking to raise cash and gain access to cash for sale-leaseback transactions will double over the next five years. The REIT should have no trouble fulfilling either condition.
IIP presently owns 107 properties in 19 states. The cannabis industry is exploding in all of these states, with growth happening fast in many of them. In addition, there are 18 more states that have legalized medicinal marijuana where IIP does not currently operate.
IIP will not have trouble obtaining funds to acquire and lease back properties to cannabis businesses. IIP ended 2020 with $406 million in cash and cash equivalents, as well as short-term investments. It has also recently priced a public offering of stock to raise $300 million in gross proceeds.
Brookfield Renewable, on the other hand, has a clear path to expansion. The company currently runs hydroelectric, solar, wind, and storage projects with a total capacity of 21 gigawatts. Its pipeline capacity is closer to three times that amount at 62 gigawatts.
Renewable energy is becoming increasingly popular. As a result, Brookfield Renewable expects to achieve total yearly returns in the neighborhood of 15% in the future. That’s enough to let the share double in less than five years. Brookfield Renewable appears to be one of the most stable growth stocks on the market.
Dividends are important
We haven’t mentioned the dividends for these equities yet. However, keep in mind that their dividends are crucial to the investment case for IIP and Brookfield Renewable.
Because it is a REIT, IIP must pay out at least 90% of its taxable income as dividends to investors. The dividend yield for IIP today is 3.6 percent. Over the previous five years, the firm has boosted its payout by more than 1,000%.
Brookfield Renewable’s dividend yield of 3.1% is very attractive. Since 2001, Brookfield Renewable has increased its distribution by a compound annual growth rate of 6%. Those dividends have had a big impact on investors over time. Over the past five years, for example, while Brookfield Renewable’s shares have appreciated 150%, the stock has generated a total return of about 230%.
No, it’s not likely that IIP and Brookfield Renewable will double in five years. However, their track records, growth prospects, and substantial dividends make it quite conceivable that they will.