If you want to get passive income streams that can fuel your retirement dreams, there are many ways to do so. Purchasing rental properties is one of the most popular options, but the responsibilities that come with building ownership typically make this method much less passive than landlords would like.
Investors who want to build a real passive income It’s probably best to buy these dividend-paying stocks and hold them throughout retirement. With an average yield of 7.5% at recent prices, an investment of $13,330 split evenly between them is enough to guarantee $1,000 in annual dividend income in 2024.
Even though $1,000 doesn’t go as far as it used to, investors probably don’t have to worry about inflation depleting the passive income streams they receive from these three stocks. The companies behind these values ​​continue to grow thanks to strong advantages over their competitors.
AT&T
AT&T (NYSE:T) has reduced its payouts in 2022 following the sale of its media assets, but the company still offers a well-above-average return. Shares of the telecommunications giant offer a juicy yield of 6.5% at recent prices.
There was $129 billion in net debt on AT&T’s balance sheet at the end of September, which isn’t as scary as it sounds. The company expects to achieve a manageable net debt-to-adjusted earnings before interest, taxes, depreciation and amortization ratio (EBITDA) ratio of 2.5 in the first half of 2025.
Landline users are becoming rare; they are being replaced by mobile and high-speed Internet clients. The third quarter of 2024 was the 15th in a row with more than 200,000 new AT&T Fiber subscribers. We can also expect this trend to continue. The company expects the number of consumers and businesses in areas with fiber to increase by 25% from current levels to exceed 30 million by the end of 2025.
Given its already immense size, AT&T probably won’t be the fastest-growing company in your portfolio, but it could become a very reliable dividend producer in a few years. As one of the three giant telecommunications service providers in the United States, many of its broadband customers have no viable options.
At recent prices, you can buy AT&T stock for just 6.4 times free cash flow. At this low multiple, investors can achieve market-beating gains even if earnings stagnate forever. Given its position in the US telecommunications industry oligopoly, steady earnings growth seems much more likely.
VerizonCommunications
Verizon (NYSE:VZ) is another highly leveraged telecommunications company with an unusually attractive dividend. At recent prices, the stock offers a yield of 6.7% and the benefit of knowing that the underlying business has never attempted to expand into the unpredictable media industry.
Verizon’s wired broadband service, FIOS, never took off, but its new landline and wireless services are attracting new subscribers. The company ended the third quarter with 10.3 million broadband subscribers, up 21% from a year earlier. The quarter ended last September was the fourth consecutive quarter in which Verizon added more than 400,000 net new broadband subscribers.
By spending heavily to expand its 5G infrastructure, Verizon found itself saddled with $122.2 million in net unsecured debt. This equates to 2.6 times adjusted EBITDA. This level is manageable, but there isn’t much room for error.
In September, Verizon increased its dividend for the 17th consecutive year. As one of three giant telecommunications companies in the United States, there’s a good chance that rising broadband revenues will allow it to continue raising those payments for at least another decade.
Ares Capital
Ares Capital (NASDAQ:ARCC) is a business development company (BDC) that offers a whopping 9.4% yield at recent prices. With a portfolio recently valued at $21.9 billion, it is also the largest publicly traded BDC.
Ares Capital and other BDCs are popular among income-seeking investors because these specialized companies can legally avoid paying income taxes by distributing almost all of their profits to shareholders in the form of dividends.
Since the Great Recession, America’s largest banks have generally avoided lending to businesses until they are large enough to obtain official ratings from one of the credit rating agencies. As a result, many mid-sized companies with annual revenues between $10 million and $1 billion are starved of capital.
There are hundreds of thousands of mid-sized companies in America, but Ares Capital’s portfolio is limited to 490 companies backed by 228 corporate sponsors.
You’ll be happy to know that only 2.1% of Ares Capital’s diversified portfolio is invested in the risky food and beverage sector. With 23.2% of the portfolio, companies marketing software and related services constitute the largest concentration in the sector.
There are no guarantees, but investors who buy the shares now could see the dividend yield on their initial investment exceed 10% in 2024. Smart underwriting allowed Ares to increase its dividend payout by 20% as of over the last three years. Despite these increases, core earnings, which reached $0.59 per share in the third quarter, were more than enough to cover a quarterly payout of $0.48 per share.
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Cory Renauer has positions in Ares Capital. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
Want an extra $1,000 in annual dividend income in 2024? Invest $13,670 in These Magnificent High-Yielding Dividend Stocks was originally published by The Motley Fool
