Dividend stocks can be great investments. Companies that pay dividends have historically outperformed the S&P 500, as those payments add to the stock's total return. While a higher dividend yield has helped, the best returns have come from companies that have consistently increased their dividends.
Some companies offer the best of both worlds. They pay a high dividend yield and deliver attractive growth. Two dividend stocks that expect to provide a fast-growing, high-yielding income stream are Crown Castle International (NYSE: CCI) and NextEra Energy Partners (NYSE: NEP). Both currently yield more than 3%, more than double that of the average stock in the S&P 500.
Connected to a decade-long growth cycle
Crown Castle is a real estate investment trust (REIT) focused on communications infrastructure like cell towers, small cells, and fiber optic cables. The infrastructure REIT leases these assets to mobile carriers under long-term contracts, generating steady cash flow. That gives it the funds to cover its 3.2%-yielding dividend.
The company sees many opportunities to continue investing in building and acquiring communication infrastructure. The main driver is the industry's rollout of faster 5G networks. Mobile carriers need more infrastructure to support this network, leading them to lease additional cell towers and small cells.
For example, T-Mobile (NASDAQ: TMUS) recently signed a new 12-year agreement with Crown Castle to support the continued buildout of its 5G network. T-Mobile's deal will help grow Crown Castle's tower and small cell revenue as the company leases additional capacity.
Overall, Crown Castle sees a decades-long investment cycle ahead as customers develop next-generation wireless networks like 5G. That supports the REIT's view that it can grow its dividend at a 7% to 8% annual rate in the coming years. That might even be conservative. It has increased its payout above the high-end of that rate the last two years due to better-than-expected demand for communications infrastructure.
Combined with its high-yielding dividend, that strong growth rate positions Crown Castle to potentially produce double-digit total annual returns in the coming years.
Powerful dividend growth ahead
NextEra Energy Partners is a clean-energy infrastructure company that operates renewable energy-generating facilities and natural gas pipelines. These assets produce stable cash flow backed by long-term, fixed-rate contracts. That helps support NextEra Energy Partners' dividend, which yields 3.6%.
The company sees a lot of growth ahead for that dividend. It currently expects to increase that payout by a 12% to 15% annual rate through at least 2024. It has several growth drivers, including acquiring clean energy infrastructure from third parties, investing in organic expansion projects, and buying assets developed by its parent, utility NextEra Energy (NYSE: NEE).
NextEra Energy Partners' relationship with NextEra alone could enable it to deliver on its dividend growth objective. The utility has one of the world's largest renewable-energy portfolios and an equally large pipeline of development opportunities, so it has no shortage of assets that it can drop down to the partnership. Those deals would help it fund additional development opportunities.
The two companies unveiled their latest transaction in late October. NextEra Energy Partners is buying a 50% interest in a large-scale portfolio of renewable energy assets, including some integrated battery storage. It financed the deal with the help of a private equity fund, which provided it with convertible equity portfolio financing. That low-cost financing structure enables NextEra Energy Partners to time when it issues equity, enhancing its ability to grow the dividend.
Combine the company's double-digit dividend growth with its high yield, and NextEra Energy Partners could produce total returns in the mid- to upper teens over the next several years.
Great dividend stocks for the long-term
The 3%-plus dividend yields of Crown Castle and NextEra Energy Partners are only part of their attraction. Both companies expect to grow their appealing payouts at above-average rates for the next several years. That means they could produce market-beating total returns in the coming years. That income with upside makes them look like great dividend stocks to buy these days.
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Matthew DiLallo owns Crown Castle International, NextEra Energy, and NextEra Energy Partners. The Motley Fool owns and recommends Crown Castle International. The Motley Fool recommends NextEra Energy and T-Mobile US. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.