Key Points
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The four stocks start with a yield of only around 1.3%, or roughly $59 a year on about $4,700 invested.
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The total return comes from earnings growth, dividends, and valuation changes, so a low yield can still pair with a strong long-term outcome.
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At the midpoint of my assumptions, this investment could grow to about $13,100 in 10 years with dividends reinvested.
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I recently invested roughly $4,700 in four dividend stocks: Brookfield Corporation (NYSE:BN), Prologis (NYSE:PLD), Chubb (NYSE:CB), and Kinsale Capital (NYSE:KNSL). At their current yields, this combined investment should generate about $59 a year in dividend income. That 1.3% current yield might sound disappointing, especially when plenty of stocks yield more than 5%.
However, I’m more interested in what these four companies could do for my wealth over the next decade than in how much passive income they’ll produce next year. Here’s why I bought them and what they could be worth in 10 years.
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Four dividend stocks with different growth engines
I bought 50 shares of Brookfield, investing about $1,900 to add $14 in annual dividends. That’s less than a 1% yield. However, the income isn’t the main point. Brookfield combines alternative asset management, insurance, and operating businesses that generate growing fees, insurance investment income, and operating cash flow. Brookfield also carries real risks, including a complex corporate structure and growing exposure to the AI and private credit markets. However, my conservative base case assumes 11% annual earnings growth — well below the 17% compound annual growth rate Brookfield expects to deliver over the next five years.
Prologis is the income workhorse of the group. I invested over $1,000 in the leading industrial REIT, which should generate $34.24 in annual dividends at its recent yield of more than 3%. The logistics landlord expects to deliver high-single-digit annualized growth in the coming years, driven by rising rents, development projects (logistics properties and data centers), and its growing asset management business. Meanwhile, there are headwinds worth noting, including higher interest rates and weaker tenant demand, which could slow growth. That’s why I think 5%+ annual core FFO per share growth over the next 10 years is a very reasonable assumption, which combines well with its higher-yielding payout.
Chubb is a bet on underwriting discipline. I bought two shares of the insurance giant for around $700, adding $8.16 in annual dividend income. Profitable underwriting, a growing investment portfolio, and buybacks all compound shareholder value, while catastrophe losses, softer pricing, and reserve surprises are the main threats. While the company has delivered robust 24.5% growth in core operating income per share through the first nine months of this year, that rate isn’t sustainable over the long term. I think a more reasonable baseline is around 8% annual normalized EPS growth.
Kinsale is the riskiest of the four. The specialty insurer has historically delivered exceptional underwriting profitability and growth, but rising competition is beginning to put pressure on its business. Despite that, I invested about another $1,100 in a company that I expect will produce only $3 in annual dividend income. What appeals to me is its potential for high returns on equity, which it can reinvest to grow shareholder value. I think Kinsale can deliver 8%+ annual earnings-per-share growth with a widening valuation multiple as its growth rate reaccelerates.
Why $59 in dividends isn’t the most important number
The roughly $4,700 I invested in these four dividend stocks isn’t buying me much dividend income. However, dividends aren’t the only way a company can reward its investors. It can also grow its earnings and cash flow per share through business growth and value-enhancing share repurchases. Faster growth can earn the stock a higher valuation in the market. Add in dividend income, and these three return drivers can really add up over the long term.
To test that idea, I built a preliminary valuation model. My base case is that these four companies can deliver an average annual total return between 9% and 12% over the next decade. Here’s a look at what I expect these investments will be worth a decade from now:
Image source: The Author.
That’s a roughly $8,400 gain, which is quite a bit more than the $59 in dividend income I expect to receive each year. I think these are very reasonable assumptions. They don’t require rapid growth or a significant expansion in their valuation multiple. These companies simply need to continue paying their dividends while growing their earnings at solid rates to compound shareholder value.
None of this is guaranteed. Growth could disappoint, valuation multiples could shrink, or dividends might get cut. However, I think those are lower-probability outcomes, as they are financially strong companies with long histories of growing shareholder value.
Dividend income is nice, but total returns matter even more
I love collecting dividend income, but I don’t pick stocks on yield alone. These four purchases show why. They’ll initially pay only about $59 a year. I’m more interested in their ability to compound earnings and grow shareholder value, and potentially turn my $4,700 into over $13,100 over the next decade. That’s the kind of long-term wealth creation I’m after.
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Matt DiLallo has positions in Brookfield Corporation, Chubb, Kinsale Capital Group, and Prologis. The Motley Fool has positions in and recommends Brookfield Corporation, Kinsale Capital Group, and Prologis. The Motley Fool has a disclosure policy.
