The Rule of 72 approximates that investors can double their money in six years on returns of 12% per year. Here are a couple of dividend stocks that have delivered total returns of 12% or higher in the last 10 years.
According to YCharts, they have transformed an initial $10,000 investment into the following amounts in the last decade, equating to annualized returns of approximately 13% and 16%, respectively.
BEP.UN and OTEX Total Return Level data by YCharts
Based on their current valuations and outlook, they have a good chance of delivering total returns of at least 12% per year and doubling investors’ money in under six years.
Brookfield Renewable Partners
Brookfield Renewable Partners (TSX: BEP.UN) has positioned itself as a leading clean energy supermajor. It has the operating and development capabilities, and the advantage of taking on global opportunities across key renewable technologies to deliver outperforming returns.
Sure enough, since its inception, it has outperformed the U.S. market and the utilities sector. For example, in the past five years, it delivered annualized returns of about 19% versus the S&P 500 Index return of 9% and the utility sector returns of 9-10%.
The stock has been weak lately, potentially from higher interest rates and an increased cost of capital. Additionally, its business performance could be lumpy depending on the timing of its mergers and acquisitions and development projects.
In the first half of the year, the top renewable energy stock achieved solid funds-from-operations-per-unit growth of 9.6%, which can help drive its target cash-distribution growth of 5-9% per year. The market correction is a good time to buy units with an initial cash distribution yield of about 5.1%. At $35.40 per unit at writing, the analyst consensus view is that it’s undervalued by about 27%!
Open Text
Open Text (TSX: OTEX) stock also has a bumpy road ahead of it. The leading information management company just took on its largest and most complex acquisition yet through the Micro Focus merger. It brings enhanced capabilities in cyber resilience and informational governance. Moreover, it brings additional capabilities in application development and modernization, advanced analytics, and IT operations.
The tech company took on sizeable debt to finance the acquisition at a time when interest rates were rising. As of the end of the fiscal year (at the end of June), it had US$9.1 billion of outstanding debt with a weighted average maturity of 5.7 years and a weighted average interest rate of 6.6%.
About 47% of its debt is fixed rate. So, it would be sensitive to interest rate changes. Open Text ended the fiscal fourth quarter with a net leverage ratio of 3.5 times versus 2.0 times a year ago. That said, it expects substantial free cash flow generation to help it reduce the leverage ratio to less than three times within two years.
Successful (and especially rapid) integration of Micro Focus would lead to substantial value creation (primarily in price gains) for shareholders who can withstand the volatility in the stock. The tech stock pays a growing U.S. dollar-denominated dividend with a current yield of about 2.7%. At $50.25 per share at writing, the analyst consensus view is that it’s undervalued by about 25%.
Don’t just bet your money across two stocks. Invest your money in a diversified portfolio of quality stocks to spread your risk around.
