High-Yielding Fast-Growers I Am Buying Hand-Over-Fist

seekingalpha08-23

Investors often have to choose between high-growth or high-yield stocks.However, there are some individual stocks that offer both attractive dividend yields and high growth.We discuss several of them ...

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High-growth stocks can often be found in funds like ARK Innovation ETF (ARKK), while high-yield stocks are found in ETFs such as the SPDR Portfolio S&P 500 High Dividend ETF (SPYD) or a combination of the two, found, for example, in the Schwab U.S. Dividend Equity ETF (SCHD) which has a dividend yield of around 3.5% with high single-digit annualized dividend growth expected. However, there are some individual stocks out there that still offer very attractive combinations of yield and growth. These stocks allow investors to collect dividend yields of 4% to 6% per year, while also delivering 10% to 20% annualized growth per share well into the future. These are the ultimate sweet spot investments, as they provide investors with attractive current income, typically from stable cash flows, while also offering the potential for strong capital appreciation. This means that investors do not have to sacrifice either yield or growth to achieve satisfactory long-term returns. These stocks can be particularly appealing to both income-focused investors and younger investors who are primarily focused on total returns as the strong growth rate combined with the income they generate should deliver outstanding returns over time while also protecting the purchasing power of the income they throw off from the eroding influence of inflation. In this article, we will take a look at some sectors and picks in those sectors that offer these types of opportunities: Alternative Asset Managers One of the sectors where these sorts of opportunities are most common is the alternative asset management space. The reason for this is that alternative asset managers generally earn very stable cash flows from fee-based earnings off of their assets under management. These assets are typically locked up under either long-term or even permanent arrangements in funds and other investment vehicles, enabling them to pass on an annuity-like stream of income to shareholders. As a result of this stable cash flow nature of the businesses and the fact that they are very asset-light in nature—since all they do is raise and manage money—alternative asset managers can, if they choose, have a very high payout ratio of between 80% and 95%. This enables them to deliver attractive dividends to shareholders while still being able to grow at a high rate because they have such asset-light business models that generate very high returns on invested capital and have limited opportunities to deploy new capital outside of mergers and acquisitions. Therefore, they are particularly well-suited to deliver attractive combinations of yield and growth. The present moment is an especially attractive time to invest in alternative asset managers due to the strong growth in the sector driven by the growing demand from institutional investors like sovereign wealth funds, pension funds, and endowment funds. These investors are in search of stable high yields from investments that are typically not available in public markets. Even when they are, such large institutional funds tend to shy away from the volatility inherent in public markets and prefer the more stable valuations of private and alternative assets. Blackstone (BX) has been a clear testimony to the power of this business model to deliver outsized long-term total returns and dividend growth to shareholders, as the chart below illustrates. Data by YCharts That said, if we were to pick an alternative asset manager at the moment, we would not pick Blackstone as we think there are several other options in this space that offer better risk-reward. One of these is Blue Owl Capital (OWL), as its growth rate is likely going to be substantially higher than Blackstone's due to its smaller size and greater concentration in direct lending, which has a much higher growth rate as a sector right now relative to Blackstone's heavier concentration in more slow-growing sectors like real estate. Additionally, OWL offers a next 12-month expected dividend yield of 4.7% compared to Blackstone's expected next 12-month dividend yield of just 3.4%. Infrastructure Another sector where we see significant opportunities to buy stocks that offer high current yields and high growth rates is the infrastructure space. These businesses can pay high dividends due to the stable long-term contracted and regulated nature of their cash flows, which facilitates being high dividend payers. They also benefit from contractual rent increases that are often linked to inflation, attractive high-return-on-investment organic growth projects, and high demand for quality infrastructure that will likely drive asset appreciation as well as strong re-contracting for assets. Additionally, there is strong demand for new projects that should fuel high-returning growth investments and industry consolidation. One of our favorite picks in this space right now is Brookfield Infrastructure Partners (BIP)(BIPC), which combines a well-diversified business model that has access to the midstream, utilities, data, and transportation sectors. This includes assets like pipelines, transmission lines, ports, railroads, toll roads, container shipping boxes that are leased out to shipping companies, and towers and data centers that are expected to generate 20%+ annualized returns due to the AI boom driving strong demand for these assets. This provides investors with a well-diversified source of cash flows. On top of that, the company has a very strong balance sheet, as evidenced by its BBB+ credit rating, well-laddered debt maturities, significant liquidity, and backing from its parent, Brookfield (BAM)(BN). BIP also has a tremendous track record of growing its distribution at a mid- to high-single-digit annualized rate and growing its FFO per unit at a double-digit rate. Data by YCharts The company is also expecting to grow its FFO at over 10% for the foreseeable future, while paying out a distribution of over 5% relative to its current unit price. Its management’s track record of recycling capital effectively and delivering long-term total return outperformance makes this a very attractive risk-adjusted opportunity right now. Investor Takeaway  By building a core of stocks that offer a combination of high-yield and high-growth while still having quality balance sheets and fairly stable business models, investors can set up their portfolios for long-term success. They can enjoy attractive and growing passive income while also experiencing robust growth in total returns over time. This is what we have been doing and continue to do by pursuing stocks in the alternative asset management, infrastructure, and numerous other sectors where we are finding stocks that offer this rare but very attractive combination.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2461402003"}