Dividend stocks can be a lucrative source of passive income. Several high-quality companies pay high-yielding dividends. That enables investors to generate more income for every dollar they invest.
For example, the following five high-yielding dividend stocks could turn a $5,000 investment into more than $300 of annual passive income from dividends:
Dividend Stock | Investment | Current Yield | Annual Dividend Income |
|---|---|---|---|
Enbridge (NYSE: ENB) | $1,000.00 | 6.22% | $62.20 |
Vici Properties (NYSE: VICI) | $1,000.00 | 5.51% | $55.10 |
Verizon(NYSE: VZ) | $1,000.00 | 6.69% | $66.90 |
Whirlpool (NYSE: WHR) | $1,000.00 | 6.33% | $63.30 |
W.P. Carey (NYSE: WPC) | $1,000.00 | 6.17% | $61.70 |
Total | $5,000.00 | 6.18% | $309.20 |
Data source: Google Finance.
For comparison, the same investment in an S&P 500 Index Fund would produce only about $60 of annual dividend income, given the broad market index's current yield of around 1.2%.
Here's a look at what makes these companies ideal for those seeking to collect passive income.
Enbridge
Enbridge is a leading North American pipeline and utility operator. The company's businesses produce very stable cash flow backed by long-term, fixed-rate contracts and government-regulated rate structures. It pays 60% to 70% of its steady cash flow in dividends.
The energy company reinvests the rest into expanding its infrastructure network. It currently has tens of billions of dollars in capital projects under construction that will enter commercial service through the end of the decade. That gives it a lot of visibility into its ability to grow its cash flow in the future. Enbridge's growing cash flow should give it more fuel to increase its dividend. The company has raised its payout for 29 straight years, one of the longest streaks in the energy sector.
Vici Properties
Vici Properties is a leading real estate investment trust (REIT) focused on experiential properties in the gaming, leisure, and hospitality sectors. It signs long-term net leases for these properties with high-quality operating companies. Those leases supply Vici Properties with very stable rental income that steadily rises with inflation-linked rental rate increases.
The REIT pays about 75% of its stable cash flow in dividends, retaining the rest to help fund new investments. It will acquire experiential properties and provide funding to companies developing new properties, many of which it can acquire in the future. Those investments grow its income, enabling the REIT to increase its dividend. It has raised its payout in all seven years since its formation, growing it at a peer-leading 7% annual rate.
Verizon
Verizon is a leading mobile and broadband provider. The telecom company generates recurring revenue as customers pay their bills.
The company invests a significant percentage of its cash flow into maintaining and expanding its network. Even after that heavy investment, it produces lots of excess free cash. Through the first nine months of this year, Verizon produced $14.5 billion in free cash after capital spending, which ismore than enough to cover its $8.4 billion dividend outlay. It used the remaining excess free cash to strengthen its balance sheet.
Verizon's investments to grow its network, including an agreement this year to buy Frontier Communications for $20 billion, increase its cash flow. That allows the telecom company to steadily raise its dividend. It delivered its 18th consecutive annual dividend increase this year, the longest current streak in the U.S. telecom sector.
Whirlpool
Whirlpool is an iconic appliance manufacturer. Its brands include Whirlpool, Maytag, KitchenAid, JennAir, and others. The company reported about $19 billion in sales last year.
Theappliancemakerhas struggled a bit in recent years because of the slowdown in the housing market. However, it's working to turn things around by shedding some of its international operations, cutting costs, and investing in innovative new products. That has the company on track to significantly expand its margin in the future.
Despite its recent struggles, Whirlpool should produce about $500 million in free cash flow after capital spending this year, or about 3% of its net sales. That's enough to cover its dividend, which totals $400 million. It's also working to repay debt and has repurchased some of its cheap stock. Meanwhile, Whirlpool expects its free cash flow to grow to 7% of its revenue by 2026. The company should be able to build on its 70-year track record of paying dividends, with growth likely to resume in the coming years.
W.P. Carey
W.P. Carey is a diversified REIT. It owns operationally critical real estate in the industrial, warehouse, and retail sectors across North America and Europe. It also owns self-storage and other properties. It signs net leases for these properties with high-quality tenants.
The REIT is in the middle of reshaping its portfolio. It has sold or spun off its entire office property portfolio over the past year. It has also sold off some other non-core properties. As a result, the REIT reset its dividend last year to reflect its reduced earnings and a desire to retain more cash to invest in additional properties.
W.P. Carey has been slowly rebuilding its portfolio and dividend. It expects new properties to grow its cash flow in the future, which should enable it to steadily increase its dividend.
High-quality, high-yielding income stocks
Enbridge, Vici Properties, Verizon, Whirlpool, and W.P. Carey generate lots of cash flow, which allows them to pay lucrative dividends while investing to grow their businesses. That growth should enable these companies to increase their payouts in the future. This combination makes them ideal ways to generate passive income.
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Matt DiLallo has positions in Enbridge, Verizon Communications, Vici Properties, W.P. Carey, and Whirlpool. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Verizon Communications, Vici Properties, and Whirlpool. The Motley Fool has a disclosure policy.
