Forget Dividends! 2 Growth Stocks Offer Better Short-Term Returns

If you want to play it safe or you are planning to start a passive income, dividend stocks might be your best bet. But for short-term returns, go with growth stocks.

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When it comes to starting a reliable, passive income, there are few better alternatives than high-yield dividend stocks, especially if they are Dividend Aristocrats. But these are relatively rare, and if you calculate your returns based on how much you invested (if we disregard the capital growth dividend stocks offer), it usually takes more than a decade for stock to “reimburse” your investment capital purely through dividends.

While that might be what most investors look for, it’s not ideal if you are seeking healthy returns over a relatively short period of a decade or so. For that, you will have to go with growth stocks. They might be somewhat riskier, and your returns may suffer if you need to realize your gains (or losses) when the stocks are at a dip. But if they can sustain their historical growth rates and you sell at the right moment, you can get much better returns compared to dividend stocks.

Ironically, that is better for passive income as well because if you can invest a hefty sum at once and lock in a high yield, you might be able to start a much thicker passive income stream.

A golden growth stock

Franco-Nevada (TSX:FNV)(NYSE:FNV) is a Dividend Aristocrat, but it’s a better buy for its growth potential and the nature of its business. Unlike pure gold companies, that is, mining companies with direct exposure to the metal and gold prices that tend to have a negative correlation with the broader stock market, Franco-Nevada relies on royalties and streams.

This doesn’t just make its income statement relatively more stable; rather, it gives its stock a relatively more steady growth pattern than other companies in the sector. So if we take its 10-year compound annual growth rate (CAGR) of 18.8% as a benchmark, the stock can quickly grow your stake at more than double the capital you invested in the company in less than 10 years.

A venture capital stock

While the junior market is full of exciting growth stocks, few have proven growth histories as long as StorageVault Canada (TSXV:SVI). Its core business is self-storage and portable storage units. It owns, manages, and rents out these units. The company has consolidated a lot of territory and business in this space and now operates through seven underlying brands, each with its own locality focus.

Its portfolio now consists of over 150 stores and 4,600 storage units across the country. The concentration is highest in Ontario. But its dominant position in the self-storage market is just one reason to consider this stock; the other is its powerful growth history. The company has a 10-year CAGR of 36% and holds the potential to double your money in less than three years.

And if you can hold on to it for a decade (considering it can keep up its growth pace), the company can grow your tiny investment seed into a bountiful tree of returns.

Foolish takeaway

If rapidly growing stocks are not your cup of tea, especially if you think they won’t be able to sustain their powerful growth rate for a relatively long time, you can play the long game with broad-market index funds. But if your goal is simply to double your capital in as short a time as possible, then the aforementioned growth stocks mentioned and a few others like these two might be your best bet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned.

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