Reasons Behind My Decision to Purchase Additional Shares of These High-Yield Dividend Stocks

Reasons Behind My Decision to Purchase Additional Shares of These High-Yield Dividend Stocks

I am on my way to financial independence. A key aspect of my strategy is increasing my passive income streams. I strive to generate enough income to offset my recurring expenses.

I still have a long way to go, but I’m making steady progress. I do this by investing in high-quality dividend stocks, focusing on those with higher and steadily increasing dividends. I recently purchased a few more shares of Chevron (NYSE: CVX), Real estate income (NYSE:O)And Verizon (NYSE:VZ). Here’s why I think they will help me on my journey to financial freedom.

Plenty of fuel to increase your earnings

Chevron is an elite dividend stock. The oil giant has increased its payouts for 37 consecutive years. It increased its dividend faster than the S&P500 over the past five years and at a rate more than double that of its nearest peer. Its most recent increase was 8%.

I firmly believe that Chevron can continue to grow its attractive dividend (it currently yields 4.2%). In recent years, the company has focused its investments on its most profitable opportunities. This reinforces its view that it can grow its free cash flow per share by more than 10% per year through 2027. This forecast assumes oil will average around $60 per barrel. That would give the oil giant the liquidity to continue investing in high-yielding expansion projects, increasing its dividend and buying back shares at the lower end of its $10 billion to $20 billion target range.

Chevron could grow its free cash flow even faster if prices were higher (crude oil currently costs over $80 per barrel). In the meantime, he agreed to buy out his rival Hesse in a roughly $60 billion deal. This acquisition would improve and extend its growth prospects into the 2030s. Chevron estimates it could double its free cash flow by 2027 to $70 oil if it completes its acquisition of Hess. Given these factors, Chevron should have enough fuel to continue paying and growing its high-yielding dividend.

As consistent as possible

Realty Income has lived up to its name over the years. The real estate investment trust (REIT) has provided its investors with sustainable dividend income. It pays a monthly dividend, which has increased 124 times since its listing on the stock exchange in 1994, including for the last 106 consecutive quarters. It increased that payment at an annual rate of 4.3%.

The REIT should have no problem continuing to increase its high-yield payout (currently 6%). It aims to increase its adjusted funds from operations (FFO) per share of 4 to 5% per year. Acquisitions are the main driver of expansion. Realty Income invests billions of dollars each year to acquire and develop additional income-producing real estate. The company has significant financial flexibility to fund new deals thanks to its conservative dividend payout ratio (approximately 75% of its adjusted FFO) and elite balance sheet.

Realty Income has massive runway for growth. The total potential market for properties it could acquire in the United States and Europe is $13.9 trillion. It has lengthened this runway by expanding into new real estate verticals such as data centers, gaming, and other European countries.

A cash distributor

Verizon is a monster dividend stock. The telecoms giant is currently down 6.7%. This important payment rests on an increasingly solid foundation.

The company generates significant cash flow. It generated $37.5 billion in operating cash flow in 2023, easily covering its $18.8 billion in capital expenditures and $11 billion in dividend payments. This allowed it to generate excess free cash flow to further strengthen its already strong, investment-grade balance sheet.

Verizon should continue to generate significant free cash flow going forward. She invested heavily in the construction of her 5G infrastructure, which should increase its revenues and cash flow. At the same time, capital spending is declining (expected to be between $17 billion and $17.5 billion in 2024). The telecom company is also working to reduce operating costs by $2 billion to $3 billion by 2025, while interest costs are expected to decline as it pays down debt. These catalysts should increase its free cash flow, allowing Verizon to continue increasing its dividend, which it has done for 17 consecutive years.

High quality income stocks

Chevron, Realty Income, and Verizon check all the boxes for me. The two most important are that they pay higher yielding dividends, which are expected to continue to increase in the future. That’s why I recently bought a few more stocks. I hope to continue adding to these posts as I believe they will help me in my quest to achieve financial freedom through passive income.

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Matt DiLallo holds positions at Chevron, Realty Income and Verizon Communications. The Motley Fool ranks and recommends Chevron and Realty Income. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Why I Bought More of These High-Dividend, High-Yield Stocks was originally published by The Motley Fool

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