Today we’re going to take a look at 10 dividend stocks that look like solid bets to generate double-digit total returns every year, or at least every year on average.
Claiming a stock will deliver a double-digit return every year is a bold statement. After all, the “Siegel constant,” named after Wharton Professor Jeremy Siegel, says the stock market as a whole delivers total returns of around 7% per year after inflation. So, a stock that delivered a double-digit return every year would be one that consistently beat the market.
A 10% annual return is obviously not get-rich-quick money. But at that rate, you’re still doubling your money every seven years, and that’s not too shabby.
You know the old refrain: Past performance is no guarantee of future results. I can’t promise you that every stock on the list will deliver a double-digit return, particularly if we have weakness in the broad market. But I can tell you this: Based on current prices and dividend yields, these stocks are definitely priced well enough to make double-digit returns possible, which is better than what I can say for the vast majority of other stocks.
You’ll notice some common themes among this list of dividend stocks to buy. They all pay dividends, and most a long history of raising those dividends. Also, tech stocks or other companies I see as being at risk of disruption are also mostly left off the list.
In no particular order, here’s a look at the picks:
Dividend Yield: 6.6%
I’ll start with one of my favorite long-term holdings, pipeline giant Energy Transfer Equity LP (NYSE:ETE).
Let’s start with the dividend. At current prices, ETE yields 6.6%. Dividend growth has been a little tepid of late, as the company overextended itself during the go-go years of the 2010s energy boom and is in the process of slowly deleveraging by retaining more of its cash. But this is a company that, as recently as a couple years ago, was improving its dividend at a 30% annual clip.
With a dividend yield of more than 6%, ETE doesn’t have to hit any home runs to generate a double-digit annual return. Even being the tortoise rather than the hare, 4% share price appreciation should be doable, and I expect it to be much better than that.
New wells in the Texas Permian Basin are profitable at prices as low as $20 per barrel. That tells me that domestic oil and gas exploration is here to stay, and midstream operators like ETE are going to be major beneficiaries.
I’ll admit, I’m partial to Energy Transfer, as it was my winning pick in 2016’s Best Stocks contest with a 53% return. I can’t say I expect every year to be like that. And in fact, ETE’s massive run last year was only made possible because of the beating the stock took the previous year.
But at today’s prices, ETE is definitely priced to deliver double-digit returns annually for a long time to come.
Dividend Yield: 6.3%
Along the same lines, I’d consider rival pipeline operator Enterprise Products Partners L.P. (NYSE:EPD) to be a solid bet for annual double-digits returns.
EPD is the bluest of blue chips in the midstream pipeline space. While rivals such as Energy Transfer and Kinder Morgan Inc (NYSE:KMI) got themselves into trouble by growing their dividend too aggressively and resorting to borrowing aggressively to fund new products, EPD has quietly kept its head down and plugged along. If there was ever a crisis in the oil patch, you would never have known it from seeing EPD’s operating results.
At current prices, EPD sports a dividend of 6.3%. But it also consistently raises that dividend at a 5%-6% clip every year. Again, that’s not get-rich-quick money. But it’s a recipe for annual returns in the ballpark of 12%.
Stock prices rise, and stock prices fall. And even stodgy, boring EPD periodically sees its stock price get tossed around, as we saw in 2015. But at current prices and yields, Enterprise Products Partners would seem like a safe bet for double-digit annual returns for the foreseeable future.
Dividend Yield: 5.7%
It’s a lot easier to generate a double-digit annual return when you’re not having to pay federal income taxes. And that brings me to our next pick, business development company (BDC) Main Street Capital Corporation (NYSE:MAIN).
BDCs pay no federal income taxes so long as they distribute at least 90% of their profits as dividends. So, as you might imagine, they tend to be among the highest-yielding dividend stocks out there.
Main Street is somewhat quirky in that it pays a regular monthly dividend that it augments with one or two special dividends per year. While this is not the industry norm, it makes sense. By allowing for a special dividend that varies with profitability, it reduces the risk that the company would have to lower its dividend if it hit a rough patch.
Let’s look at the numbers. At current prices, Main Street’s regular monthly dividend of 18.5 cents amounts to a yield of 5.7%, and the special dividends chip in another 1.4%. So the dividends alone account for about 7.1% in annual return. That means the company only has to manage a measly 2.9% in capital appreciation per year to hit that double-digit mark.
That doesn’t sound too hard, does it?
Dividend Yield: 10.3%
Along the same lines, I’d recommend fellow business development company Prospect Capital Corporation (NASDAQ:PSEC).
Prospect Capital is a controversial stock in the BDC space. Unlike Main Street, which runs a very conservative dividend policy, Prospect Capital tends to be a little more aggressive, which has caused the company problems in the past. PSEC had to cut its dividend in early 2015, which alienated some of its retail stockholders who had been depending on the monthly dividend to pay their bills.
It didn’t help that Prospect is externally managed and has a more opaque management compensation scheme than a lot of other BDCs.
All of this helped to depress Prospect’s share price, which has created a nice opportunity for investors willing to go against the grain. At current prices, Prospect yields 10.3%. So the share price could actually fall by nearly a percent per year and you’d still be earning a nice double-digit return.
Prospect is not without its risks. Its investment income covers its dividend by a pretty narrow margin most quarters. But this BDC also trades at a slight discount to its NAV, which gives you some degree of safety, and this stock has had some of the strongest insider buying I’ve ever seen over the past few years. All in all, I like our odds.
Dividend Yield: 9.4%
I’m the first to admit that I don’t have a clue what direction the stock market is going to go over the next year, let alone the next decade or more. At the end of the day, you’re attempting to forecast human emotions, and it’s hard to handicap something so inherently irrational.
But demographic trends are another story.
By looking at a simple chart of Americans by age, you have a really good idea what demand for a lot of products will look like. And this brings me to my next double-digit return candidate, Omega Healthcare Investors Inc (NYSE:OHI). Omega is a triple-net REIT that owns skilled nursing and assisted living facilities.
I should make an important distinction here. Omega is not in the business of running old folks’ homes. It’s the landlord for companies running old folks’ homes. You might think this doesn’t matter, but I assure you it does. These businesses are highly dependent on Medicare and on private insurance companies. So changing reimbursement rates can have an outsized impact on profits. But even if the shekels get tight, they’re still going to pay their rent. Which is why I consider Omega a fantastic long-term holding.
At current prices, Omega yields 9.4%. And importantly, it raises its dividend 8%-9% per year. Between the high current yield and the dividend growth, I think it’s safe to say that Omega should easily deliver double-digit returns over time.
Dividend Yield: 4.5%
A stodgy retail REIT like Realty Income Corp (NYSE:O) might seem like a farfetched choice, but hear me out. The stock has actually generated compound annual returns of 16.9% since its 1994 listing. So while the company is distinctly boring — it’s a passive landlord of high-traffic retail properties such as pharmacies and convenience stores — its returns have been fantastic.
Now, to be fair, a lot of those returns came in the late 1990s and early 2000s, when REITs were still a mostly undiscovered asset class and dividend yields were a lot higher than they are today. But even at today’s prices, I believe double-digit annual returns are doable.
Realty Income currently sports a dividend yield of 4.1%. Over the course of its life, it has raised its dividend at a 4.7% annual clip. So between the current dividend yield and the dividend growth rate, you’re already getting close to double-digit returns. And over the past year, the stock has actually bumped its dividend at a faster rate (around 6%).
So, if Realty Income is able to keep boosting the dividend at that rate and market yields stay pretty constant, you’re looking at a 10% annual return.
Dividend Yield: 7%
Maybe I’m a sucker for reform stories, but I see a very good future ahead for retail and restaurant REIT VEREIT Inc (NYSE:VER), which boasts Red Lobster among its top tenants.
VEREIT has a checkered past. Its predecessor, American Realty Capital, was brought down by an accounting scandal that thoroughly tarnished the company’s brand and forced it to slash its dividend for while. But the management team that was responsible for the accounting shenanigans was forced to resign, and their replacements have done a fine job of cleaning up the company’s books, selling off non-strategic properties and building a classy organization with staying power.
VEREIT currently yields 7% in dividends. Historical dividend growth numbers aren’t particularly relevant since it only reinstated its dividend a little over a year ago. But VEREIT has ample room to raise its dividend, and that will only improve as the company’s credit rating continues to improve. VEREIT recently reclaimed investment-grade status after being downgraded to junk in the wake of the accounting scandal.
Between the fat dividend yield and the expected revaluation, double-digit annual gains for years to come seems pretty reasonable.
Dividend Yield: 6%
I’ll add one last REIT to the list of double-digit gainers, retail REIT W.P. Carey Inc. REIT (NYSE:WPC).
WPC is fairly similar to Realty Income, though in addition to its regular public REIT operations, it also has a private REIT business. Private REITs, which sometimes sport large selling commissions, have come under regulatory scrutiny of late, which partially explains why WPC trades at a discount to peers like Realty Income. But I would argue those fears are vastly overdone, and with a dividend yield of 6%, WPC would seem like a steal.
There is also a well justified fear that Amazon.com, Inc. (NASDAQ:AMZN) and other internet companies are destroying traditional retail. Well, frankly, they are. But the risk is far more serious for shopping malls and “big box” retailers. Restaurant, light industrial and basic services (think everything from U-Haul locations to gas stations to nail salons) are almost entirely unaffected, and these are the types of properties that the triple-net retail REITs like W.P. Carey tend to buy.
Starting with a 6.2% dividend, WPC has to muster just 3.8% per year in capital gains to generate solid double-digit annual returns. Management would really have to make a mess of things for that not to happen.
Dividend Yield: 3.6%
You might spit up your coffee upon reading this, but I believe that General Motors Company (NYSE:GM) — yes, General Motors, the chronically mismanaged American auto giant — is likely to deliver double-digit annual gains for a long time to come.
I know, I know. General Motors has been a train wreck for virtually my entire adult life. But it comes down to price. GM is so cheap right now, merely staying in business virtually guarantees a respectable return.
GM stock trades for less than 6 times forward earnings and for 0.3 times sales. Yes, I understand that General Motors is a highly cyclical company, and one that faces competitive threats from ride sharing companies like Uber and from driverless car technology. But at these prices, all of this bad news is more than priced in. You’d pretty well have to have a zombie apocolypse in order for GM’s sales to fall hard enough to justify that kind of a valuation.
GM sports a dividend yield of 3.6% and a low dividend payout ratio of just 25%. So there is plenty of room for dividend growth even its profit growth is sluggish in the years ahead.
Toss in a little P/E multiple expansion, and you’re easily looking at double-digit gains for years to come.
Dividend Yield: 4.7%
If it’s true for General Motors, it has to be true for rival Ford Motor Company (NYSE:F) as well. As was the case with GM, Ford trades at an absurdly cheap valuation. The shares fetch just 7 times forward earnings. And yes, Ford also faces the same challenges. Ride sharing and improved public transportation are long-term threats that will eat into growth.
But it’s a mistake to assume these are linear trends. Yes, millennials have been less eager than prior generations to own a car. A lot of that is due to them being the most indebted generation in history and earning lousy starting starting salaries coming out of college. But as those millennials finally settle in to adult life and put down roots, they will buy cars. As a practical matter, having children changes your life, and carting them around is a lot easier in a car than in a taxi or subway train.
At current prices, Ford sports a dividend yield of 4.7%. Given the cheapness of the stock, 5% annual capital gains seems almost laughably low. Ford should safely produce annual returns well into the double digits for years to come.
Charles Sizemore is the principal of Sizemore Capital, a wealth management firm in Dallas, Texas. As of this writing, he was long EPD, ETE, F, GM, MAIN, O, OHI, PSEC, VER and WPC.