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If you want to secure a passive income stream to fuel your retirement dreams, there are many ways to do it. Buying a rental property is one of the most popular options, but because the building owner is responsible, this method is usually much less passive than landlords would like.
Investors who want to build a truly passive income stream would probably be much better off buying these high-dividend stocks and holding onto them well into retirement. The average yield at recent prices is 7.5%, so a $13,330 investment, spread evenly, is enough to generate $1,000 in annual dividend income in 2024.
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Although $1,000 isn’t as high as it used to be, investors probably don’t have to worry about inflation drying up the passive income stream from these three. The underlying businesses of these stocks are still growing thanks to strong advantages over their competitors.
AT&T
AT&T (T 1.87%) cut its dividend in 2022 following the sale of media assets, but the company still offers a well-above-average yield. The telecommunications giant’s shares offer a high yield of 6.5% at recent prices.
At the end of September, AT&T had $129 billion in net debt on its balance sheet, which isn’t as scary as it sounds. The company expects to achieve a manageable net debt-to-adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) ratio of 2.5 in the first half of 2025.
There are fewer landline phone users. They are being replaced by mobile and broadband his Internet customers. The third quarter of 2024 marked the 15th consecutive year that AT&T Fiber’s new subscriber count exceeded 200,000. This trend is expected to continue. The company expects the number of consumers and businesses living in fiber-enabled locations to grow by 25% from today, to more than 30 million by the end of 2025.
Given its already huge size, AT&T probably won’t be the fastest growing company in your portfolio, but it could become a very reliable dividend grower in a few years. Many of the company’s broadband customers, one of just three giant telecommunications service providers in the United States, have no viable options.
At recent prices, AT&T stock can be purchased for just 6.4 times trailing free cash flow. This low multiple allows investors to outperform the market even if earnings stagnate forever. Given the company’s position in the US telecommunications oligopoly, steady revenue growth seems much more likely.
verizon communications
verizon (VZ 2.11%) is also a debt-heavy telecommunications business that offers an unusually attractive dividend. At recent prices, this stock offers a 6.7% yield, plus the benefit of knowing the underlying business has never attempted to expand into the unpredictable media industry.
Verizon’s wired broadband service, FIOS, hasn’t caught on, but its new fixed wireless service is gaining new subscribers. The company ended the third quarter with 10.3 million broadband subscribers, an increase of 21% year over year. His three-month period ending last September was the fourth consecutive quarter in which Verizon increased net new broadband subscribers by more than 400,000.
As a result of spending heavily to expand its 5G infrastructure, Verizon had $122.2 million in net unsecured debt. This is 2.6 times adjusted EBITDA. This level is manageable, but does not leave much room for error.
In September, Verizon increased its dividend for the 17th consecutive year. The company, one of his three giant telecommunications businesses in the US, is very likely able to keep raising its dividend for at least another decade due to rising broadband revenues.
ares capital
ares capital (ARCC -0.34%) is a business development company (BDC) that offers a huge yield of 9.4% at recent prices. Its portfolio was recently valued at $21.9 billion, making it the largest publicly traded BDC.
Ares Capital and other BDCs are popular among investors looking for returns. This is because these specialized companies can legally avoid paying income tax by distributing nearly all of their profits to shareholders as dividends.
Since the Great Recession, major U.S. banks have generally avoided lending to companies until they are large enough to receive a formal score from one of the credit rating agencies. As a result, many middle-market companies with annual revenues of $10 million to $1 billion are undercapitalized.
Although there are hundreds of thousands of mid-sized companies in the United States, Ares Capital’s portfolio is limited to 490 companies backed by 228 corporate sponsors.
You’ll be pleased to know that only 2.1% of Ares Capital’s diverse portfolio is invested in the high-risk food and beverage industry. Companies that sell software and related services account for 23.2% of the portfolio, the highest concentration in the industry.
Although there are no guarantees, investors who buy this stock now could see a dividend yield of over 10% on their original investment by 2024. Smart underwriting has allowed Ares to increase its dividend by 20% over the past three years. Despite the hike, his core earnings of $0.59 per share in the third quarter were more than enough to cover his quarterly dividend of $0.48 per share.
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