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3 Stocks That Could Create Lasting Generational Wealth

Motley Fool - Sat Jan 13, 4:04AM CST

Many families want to leave a legacy for their children. A great way to leave a lasting financial legacy is to own assets that steadily increase in value over the decades while sending a rising income stream to the holder. Investing in high-quality dividend stocks can be a great way to build generational wealth.

Realty Income(NYSE: O), Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), and Waste Management(NYSE: WM) have a long history of growing value for their shareholders. These businesses should last the test of time and continue growing in the future. That makes them great stocks to buy for those seeking to create lasting generational wealth.

A wealth-creating REIT

Realty Income has been helping its investors build durable wealth for over five decades. The real estate investment trust (REIT) owns a growing commercial real estate portfolio that produces durable and steadily-rising rental income. It pays out three-quarters of that predictable income to shareholders through dividends each month (its payout currently yields more than 5%). It retains the rest to help fund new property investments.

The REIT focuses on owning properties leased to tenants whose businesses can endure a recession and the pressure from e-commerce. It has a diversified portfolio of retail, industrial, gaming, and other properties secured by net leases. That lease structure makes the tenant responsible for variable costs like maintenance, real estate taxes, and building insurance. As a result, the REIT collects stable rental income that steadily rises as contractual rate escalators kick in each year (increasing rents at a fixed rate or one linked to inflation).

Realty Income backs its durable real estate portfolio with a fortress-like balance sheet. That gives it the financial flexibility to continue acquiring income-producing real estate. The REIT estimates that rent growth and new acquisitions will increase its adjusted funds from operations (FFO) per share by 4% to 5% per year. Add in its high-yielding and steadily rising dividend, and Realty Income could produce an average total return of around 10% annually in the years ahead.

A powerful wealth creator

Brookfield Renewable has done a fantastic job growing value for its shareholders over the years. The global renewable energy giant has expanded its FFO per share at a more than 10% compound annual rate over the past decade. That has given it the power to increase its dividend (which yields more than 4%) at a 6% compound annual rate during that period.

The company has a trio of organic growth drivers that should help power rising earnings and dividends in the years to come. Inflation-linked rate increases, margin expansion, and internally funded expansion projects should grow its FFO per share by 7% to 12% annually through at least 2028. That easily supports its plan to increase its dividend by 5% to 9% per year.

On top of that, Brookfield sees acquisitions potentially adding more than 9% to its FFO per share each year. The company has a very sustainable acquisition strategy. It recycles capital by selling mature assets and reinvesting the proceeds into higher-return new investments. Add its earnings growth to its rising dividend, and Brookfield Renewable could be a powerful wealth creator in the coming years.

Turning trash into treasure

Waste Management (WM) is a leader in providing collection, recycling, and disposal services in North America. It also has a growing renewable energy business as it turns landfill gas into renewable natural gas to generate electricity and fuel its hauling trucks.

The company's businesses generate durable cash flow. WM returns a big chunk of that money to shareholders by paying a growing dividend and repurchasing shares. It reinvests the rest into expanding its business, including making acquisitions and investing in organic projects to grow its recycling and renewable energy businesses.

The company believes its resilient cash flows and shareholder-friendly capital allocation strategy will empower it to continue growing shareholder value at an above-average rate. Over the last decade, WM has delivered a more than 17% average annual total return. That enabled it to create a lot more wealth for shareholders than the average stock (the S&P 500's total return has averaged more than 12% annually over the last 10 years).

Durable wealth creators

Realty Income, Brookfield Renewable, and Waste Management generate stable and growing cash flows backed by very resilient business models. That gives them money to pay a growing dividend while investing in expanding their businesses. Those factors have enabled them to grow value for their shareholders over the years, which should continue in the future. They're great stocks for those seeking to build wealth that could last generations.

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Matthew DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Realty Income, and Waste Management. The Motley Fool has positions in and recommends Brookfield Renewable and Realty Income. The Motley Fool recommends Brookfield Renewable Partners and Waste Management. The Motley Fool has a disclosure policy.

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