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These Dividend Stocks Can Double Your Money in Under 10 Years

Motley Fool - Mon Oct 23, 2023

Dividend stocks are for income, right? Investors shouldn't expect any significant growth, should they?

The correct answer to those questions is that it depends on which dividend stocks we're talking about. Some generate solid income but won't deliver much growth. Others, though, can give you the best of both worlds. Here are three dividend stocks that can even double your money in under 10 years.

1. Ares Capital

You'll need to obtain an average annual return of at least 7.2% to double your money in under 10 years. Ares Capital(NASDAQ: ARCC) could do the trick for you based on its dividend payouts alone without breaking a sweat. Its dividend yield currently tops 10.1%.

However, the obvious question is: Can Ares Capital keep the dividends flowing at that level? I think it absolutely can. My confidence is based in part on history. The company has paid out stable to growing dividends for more than 13 consecutive years.

I'm also optimistic about Ares Capital's long-term business prospects. It's the largest publicly traded business development company (BDC). If you're not familiar with BDCs, they provide financing to middle-market businesses that banks often snub. The demand is increasing for the direct lending that BDCs provide.

Importantly, Ares Capital manages its risk very well. It boasts a more highly diversified portfolio than peers with 475 portfolio companies. Ares Capital focuses on the upper tier of middle-market businesses, which typically are less risky. The BDC also is really picky about which deals it makes with an average closing rate of around 5%.

2. Enterprise Products Partners

Enterprise Products Partners(NYSE: EPD) could also double your investment in less than 10 years with only its distributions. The limited partnership's distribution yield stands at nearly 7.3%.

That might seem like a close call since it would take an annual return of 7.2% to deliver a 2x return in less than a decade. However, Enterprise Products Partners' track record should be reassuring. The midstream energy company has increased its distribution for 25 consecutive years with a compound annual growth rate of around 7%.

You probably won't have to depend solely on Enterprise's distributions to grow your investment, though. Even with the wider adoption of renewable energy sources, the demand for fossil fuels, particularly natural gas and natural gas liquids, is likely to increase.

Meanwhile, Enterprise Products Partners should chug along with its 50,000+ miles of pipelines and other midstream assets regardless of how oil and gas prices fluctuate. The company's cash flow per unit remained strong during the financial crisis of 2007 through 2009, the oil price collapse of 2014 through 2017, and the worst of the COVID-19 pandemic in 2020 and 201.

3. Innovative Industrial Properties

I'll readily admit that Innovative Industrial Properties(NYSE: IIPR) (IIP) appears to be an unlikely pick to double your money in under 10 years. Shares of the cannabis-focused real estate investment trust (REIT) have plunged more than 70% from their peak set in late 2021. IIP stock is down close to 25% so far this year.

So why is IIP on the list? First, there's the company's dividend yield of nearly 9.6%. IIP has increased its dividend by more than 5x over the last five years. Granted, its growth trajectory has slowed considerably. However, the dividend payout continues to climb, with the REIT announcing a 6% dividend hike last month.

Second, I think that IIP is a great "bad news buy." The company has faced a barrage of interest rate increases over the last couple of years. Cannabis operators have struggled tremendously (with a few of IIP's tenants missing their rent payments).

However, the Federal Reserve seems unlikely to raise rates much higher, if at all. The supply glut that has hurt the U.S. cannabis industry appears to be easing in key markets such as California and Michigan. Overall legal cannabis sales are still projected to double by 2030.

My view is that the headwinds for IIP will taper off over the next couple of years. The REIT should be able to keep the dividends flowing (and growing). As the cannabis industry recovers, IIP should also be able to begin adding more facilities to its portfolio.

Double trouble?

To be sure, there is no guarantee that any of these dividend stocks will actually double your money in under 10 years. A lot can happen to derail even the best stocks from succeeding. However, I think the chances are pretty good that Ares Capital, Enterprise Products Partners, and Innovative Industrial Properties will be able to generate a 100% total return over the next decade largely on the strength of their dividends.

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Keith Speights has positions in Enterprise Products Partners and Innovative Industrial Properties. The Motley Fool has positions in and recommends Innovative Industrial Properties. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

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