2X Your Money From Dividends Alone?

While not all stocks pay dividends, they can be a crucial part of a company’s total return for investors. Most companies these days pay low dividend yields, with the average for the S&P 500 currently sitting at just 2.5 percent.

 

Some, however, pay much larger amounts. While high yields can be a sign of instability, certain types of stocks can sustain dividends of 5 percent or more annually for years at a time.

 

A very few stocks pay such high dividends that they can allow you to double your money over the 10-year time horizon, even if the share prices fail to increase.

 

Two of the companies that issue these high, stable dividends are Enterprise Products Partners and Arbor Realty Trust.

 

Here’s what you should know about these two companies and how they can help you double your investment in the coming decade with dividend payments.

 

Before exploring the stocks that can make it possible, let’s take a look at the yield needed to double your money in 10 years.

 

Assuming all dividends are reinvested, a stock needs to yield about 7.2 percent annually for you to double your investment with dividend payments over a decade.

 

Any stock that maintains this yield for a period of 10 years after you purchase it will double your money, irrespective of increases in share price.

 

Enterprise Products Partners (NYSE:EPD) is a midstream services company in the gas and oil sector. EPD operates production, transportation and storage infrastructure for a variety of fuels and petrochemicals.

 

At the time of this writing, EPD shares paid an extremely impressive 7.82 percent dividend yield. This translates to an annual dividend of $1.86 per share. More impressive still is the fact that the company has consistently raised its dividends for 23 consecutive years.

 

While there certainly are companies that have held longer streaks, this consistent history of dividend hikes makes EPD one of very few stocks with a stable dividend above 7 percent.

As you can see, the yield for EPD stock is actually a bit beyond the 7.2 percent needed to double your money on a 10-year time horizon. Assuming the current yield held and dividends were reinvested, $1 invested in EPD today would turn into about $2.12 in 10 years. This figure ignores any potential growth in share price.

 

Interestingly, EPD may have a decent amount of upside going for it as well. At the moment, the stock trades for $24.66. The average 12-month target price, however, stands at $28.74. That target represents an upside of 16.5 percent over the current price. While the stock price will naturally fluctuate with oil prices, it’s clear that EPD isn’t without the potential for equity growth.

 

Like many energy companies, EPD also carries a reasonably low level of risk. The company’s 52-week range runs from $20.42 on the low end to $25.69 on the high end, showing a fairly modest level of volatility when compared to the broader market. EPD is also very fairly priced. The forward P/E on the stock is just 10.76, making EPD a rather attractive buy.

 

Although high-yield fossil fuel stocks probably can’t endure forever, Enterprise Products Partners appears to have good prospects for the future. The company is currently investing in infrastructure for carrying cleaner fuels, particularly natural gas.

 

Long-term, EPD is also looking to go green. The company plans to invest in carbon sequestration and recycling, both of which could help it ride out the green energy revolution.

 

The second stock to look at as a potential for doubling your money with dividends is Arbor Realty Trust (NYSE:ABR). ABR is a real estate investment trust that invests in mortgages and other real estate financial products.

 

ABR shares offer an even higher dividend than EPD, with the annual yield currently coming in at 8.05 percent. This translates to an annual payout of $1.48 per share. Assuming this yield holds steady, $1 invested in ABR stock today would turn into $2.17 through dividend payments over the next 10 years.

REITs are well-known as safe, stable assets to buy for reliable income. ABR is no exception, and the trust has produced excellent results for its investors over the last several years. Investors who got into ABR a decade ago have seen total gains of over 700 percent, making it a truly outstanding asset in terms of historic performance.

 

ABR has a very similar 12-month upside potential to EPD. The stock currently trades at $17.76. The median price target for the next year is $20.75, an upside of 16.8 percent. While slightly higher than EPD’s 16.5 percent, it’s worth noting that EPD may have better long-term potential.

 

Although REITs are very stable, they may not increase in price quickly. As EPD capitalizes on green energy and natural gas, the company may see more growth over a longer time horizon.

 

ABR also offers a relatively low-risk investment option. While all stocks carry risks, REITs have the advantage of being secured to some extent by physical real estate. In ABR’s case, a mix of residential and commercial real estate notes gives the company a reasonably diversified portfolio.

 

Finally, ABR stock should be able to take advantage of the spike in housing demand. As new mortgages are required, companies like ABR should be in a good position to continue increasing their revenues. While the current housing boom will eventually cool, there’s a very good chance that Arbor Realty Trust will be able to ride a wave of new mortgages for the next few years.

 

If you’re looking for a high-yield stock, Both EPD and ABR are excellent options. Both, however, have their advantages and disadvantages. EPD offers better long-term growth prospects as it shifts into greener energy solutions. The company could also benefit from the current spike in oil prices, potentially driving its stock toward the higher end of the analyst target range.

 

On ABR’s side, the company has a very stable business model that makes it somewhat less volatile than EPD. It also has a slightly higher dividend yield that offers more dividend return over the long run. With that said, a REIT may not see as much increase in its stock prices over the next 10 years as an energy company shifting to meet green energy demands.

 

Both of these stocks are priced at quite reasonable levels. Even if you don’t have a massive amount to invest, either EPD or ABR should be well within your reach, as both trade for under $30. As a result, these stocks are friendly to younger investors who may be building their portfolios for the first time.

 

Given that they are so close in terms of yield, the best approach is likely to include a mix of both of these stocks in the income-generating portion of your portfolio. This will allow you to create a more diversified income stream and take advantage of the potential long-term growth of EPD.

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