3 Dividend Stocks to Supercharge Your Passive-Income Pursuits

Making passive income is one of the keys to becoming financially independent. Once your income from passive pursuits exceeds your expenses, you no longer have to actively work to make money.

One way to accelerate your financial independence is to invest in dividend stocks with an above-average yielding dividend that can steadily grow in the coming years. Three high-quality dividend stocks that offer a big-time payout that should rise in the future are Energy Transfer (ET 3.05%)Medical Properties Trust (MPW -3.53%), and Verizon (VZ -1.58%).

A high-octane cash distribution

Energy Transfer has a monster payout. The master limited partnership (MLP) currently pays a 7.8%-yielding cash distribution. That’s multiples above the 1.6% dividend yield on an S&P 500 index fund. 

Usually, a yield that high is a warning sign. However, that’s not the case with Energy Transfer. The MLP generates mountains of recurring cash flow backed by long-term contracts and government-regulated rates. It produced $1.17 billion in cash after paying its high-yielding distribution in the second quarter. That was enough money to fund its entire $825 million of growth capital expenditures with room to spare, enabling the company to make another small acquisition and continue paying down debt.

Energy Transfer has grand plans for its distribution. The energy company wants to bring it back up to its former peak of $0.305 per unit each quarter. That’s more than 30% above the current rate. Energy Transfer has already boosted its payout by 50% this year as it steadily works its way back up to that level. Meanwhile, its payout could one day exceed its former pinnacle as the company’s expansion projects continue growing its cash flow. 

A healthy income stream

Medical Properties Trust’s dividend currently yields 7.4%. That’s well above the average in the real estate investment trust (REIT) sector, which is around 3.5%. 

This high-yield payout is also on a firm foundation. The hospital-focused REIT produces steady rental income backed by long-term leases with healthcare systems. Meanwhile, the company pays a healthy percentage of its income (less than 80% of its adjusted funds from operations) to support its high-yielding dividend. That enables it to retain some cash to finance its expanding hospital portfolio.

The REIT combines its retained cash with its balance sheet flexibility and other sources of capital (stock sales, asset sales, and joint ventures) to acquire additional income-producing hospital real estate. It made several new investments in the second quarter, including expanding into Spain. The company’s steady dealmaking has enabled it to increase its dividend for the last 9 straight years. It should be able to continue that streak in the future. 

Continuing to deliver for customers and shareholders

Verizon currently pays a 5.8%-yielding dividend. The telecom giant generates plenty of cash to support its big-time payout. Its cash flow from operations clocked in at $17.7 billion during the first half of 2022. The company invested $10.5 billion of capital to expand its operations, including deploying infrastructure to upgrade its network to 5G. Even with that heavy investment, Verizon generated $7.2 billion of free cash, which it used to pay $5.4 billion in dividends and strengthen its solid balance sheet. 

On the downside, due to competitive pressures, Verizon’s 2022 numbers have slipped a bit from the year-ago period. However, the company believes its investments will drive profitable growth over the long term. It’s investing heavily in 5G, which should support a faster network in the future, enhancing its ability to retain and grow its customer base. 

That should enable the telecom company to continue increasing its dividend. Verizon delivered its 15th consecutive annual dividend increase late last year and has the free cash flow, financial flexibility, and growth prospects to continue increasing its payout in the future. 

Big-time income producers

Energy Transfer, Medical Properties Trust, and Verizon all pay high-yielding dividends backed by solid financial profiles. That means they have the financial flexibility to continue expanding their operations, which should enable them to keep growing their payouts in the future. That combination of a big-time income stream now with even more later can help accelerate financial independence.

 

Matthew DiLallo has positions in Energy Transfer LP, Medical Properties Trust, and Verizon Communications and has the following options: short October 2022 $8 puts on Energy Transfer LP. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published. Required fields are marked *