Whereas I am an revenue investor at coronary heart, I additionally like a very good progress story. Nonetheless, I’ve discovered that one of the best returns come from firms that may ship each progress and revenue. Since 1973, dividend initiators and growers have produced a 10.7% common annualized whole return (dividend revenue plus inventory worth appreciation), outpacing shares with no change in dividend coverage (7.1%) and non-payers (4.8%), in line with information by Ned Davis Analysis and Hartford Funds. Due to that, I’ve steadily shifted my portfolio’s focus towards dividend progress shares.

Two firms that enable buyers to have their proverbial cake and eat it too are Cheniere Power (LNG -1.08%) and Magellan Midstream Companions (MMP -0.04%). This is a better have a look at these two dividend progress shares.

Simply getting began in rising its dividend

Cheniere Power is a number one producer and exporter of liquefied pure gasoline (LNG). It at present operates two liquefaction amenities, Sabine Move and Corpus Christi, that may produce 45 million tons of LNG yearly. It sells the majority of this LNG below long-term contracts, enabling it to generate moderately predictable money movement. That provides Cheniere the cash to repay debt, fund its continued enlargement, repurchase shares, and pay dividends. 

Cheniere Power initiated its quarterly dividend late final 12 months at $0.33 per share every quarter. On the present inventory worth, it presents a dividend yield of 0.8%. That is beneath the S&P 500‘s 1.5% dividend yield. Due to that, Cheniere is not interesting to income-focused buyers since many need the next yield. 

That is inflicting them to overlook out on Cheniere’s progress prospects and higher whole return potential. The corporate lately accomplished the sixth liquefaction practice at Sabine Move. It additionally made a constructive last funding choice on its Corpus Christi Stage three Liquefaction mission that may add greater than 10 million tons of LNG capability per 12 months when it comes on-line in 2026.

Together with the influence of share repurchases and debt discount, these expanded amenities place Cheniere to develop its distributable money movement run fee as much as $15-$17 per share within the coming years. That is a substantial enhance from the $2.02 per share it delivered final 12 months. That rising money movement will give Cheniere the gasoline to extend its dividend at a low-single-digit annual fee for the following a number of years. That units it as much as doubtlessly produce even increased whole returns as money movement grows sooner. 

A giant-time revenue stream with an ignored progress observe document

Magellan Midstream Companions is a grasp restricted partnership (MLP) targeted on working crude oil and refined merchandise pipelines and associated storage terminals. These belongings additionally generate steady money movement backed by long-term contracts. That gives Magellan with the funds to pay a big-time money distribution that at present yields 7.9%.

Nonetheless, progress buyers should not overlook this income-focused funding. Magellan has an extended historical past of increasing its operations, money movement, and distributions. The MLP lately permitted increasing its refined merchandise pipeline system to El Paso. It should make investments $125 million into the mission, which it expects to finish in early 2024. That can provide it with incremental money movement that it might probably use to develop its payout, repurchase items, or fund extra high-return expansions. 

Magellan has a wonderful observe document of investing capital to earn excessive returns for buyers. It has traditionally delivered a median return on invested capital of over 15%. That permits its investments to maneuver the needle farther than if it spent cash on lower-returning initiatives. The MLP’s return focus has helped it steadily develop its money movement and big-time payout. Magellan has elevated its payout for greater than 20 straight years, which it sees persevering with for the foreseeable future. That rising revenue stream may assist gasoline enticing whole returns for buyers sooner or later.

Twin return drivers

Corporations targeted on one shareholder pursuit have traditionally underperformed these that may ship progress and revenue. Due to that, buyers looking for the best returns ought to fill their portfolio with shares that may present a steadily rising revenue stream. That is precisely what Magellan Midstream has accomplished over time, whereas Cheniere seems poised to comply with in its footsteps. With Magellan providing a bit extra revenue and Cheniere the next progress fee, they are a good complement for buyers looking for a steadiness between these two return drivers.