These companies can produce steadily rising streams of passive income.
Investing money into higher-yielding dividend stocks can be a great way to turn idle cash into a lucrative income stream. High-quality, high-yielding stocks can generate a reliable income stream that steadily rises each year.
For example, the following three high-yielding dividend stocks can turn a $1,000 investment made this September into a more-than $60 stream of annual passive income:
|
Dividend Stock |
Investment |
Current Yield |
Annual Dividend Income |
|---|---|---|---|
|
Energy Transfer (ET 0.34%) |
$333.33 |
7.52% |
$25.07 |
|
Brookfield Infrastructure (BIP 0.26%) (BIPC 0.06%) |
$333.33 |
5.47% |
$18.23 |
|
W.P. Carey (WPC 0.93%) |
$333.33 |
5.39% |
$17.97 |
|
Total |
$1,000.00 |
6.13% |
$61.27 |
Data source: Google Finance and the author’s calculations.
These high-quality companies should steadily increase their payouts, enabling investors to collect even more income in the future. Here’s a look at what makes this trio such excellent options for income-seeking investors to buy this September.
Image source: Getty Images.
Energy Transfer
Energy Transfer is one of the country’s largest energy midstream companies. Its pipelines, processing plants, and export terminals generate very stable cash flow, with 90% backed by fee-based agreements. The master limited partnership (MLP), which sends its investors a Schedule K-1 federal tax form each year, generates enough stable cash flow to cover its high-yielding distribution by nearly two times. That enables it to retain substantial cash to fund growth investments.
The MLP is investing $5 billion into growth capital projects this year. It can easily fund that commitment. In addition to producing substantial surplus cash after paying distributions, Energy Transfer has a strong balance sheet with a leverage ratio toward the low end of its 4 to 4.5 times target range. These strong metrics put the company in the best financial shape in its history.
Energy Transfer’s growth capital project backlog, which currently extends through the end of the decade, should give it plenty of fuel to continue increasing its high-yielding distribution. The MLP aims to raise its payment each quarter at a 3% to 5% annualized rate. Energy Transfer has increased its distribution every quarter since resetting the payment during the pandemic, growing it well above the pre-pandemic level.
Brookfield Infrastructure
Brookfield Infrastructure is a leading global infrastructure operator. The company’s utility, energy midstream, transportation, and data assets generate very stable cash flow, with 85% backed by long-term contracts or government-regulated rate structures. Most of those frameworks either index rates to inflation (70%) or protect its earnings from the impact of inflation (15%).
The infrastructure company aims to pay out between 60% to 70% of its stable cash flow in dividends, retaining the rest to reinvest in expansion projects. Brookfield also routinely acquires new infrastructure businesses. These drivers position Brookfield to grow its funds from operations (FFO) by more than 10% per year.
Brookfield’s growing cash flows support its rising dividend. The company has increased its payment for 16 straight years. It aims to deliver 5% to 9% annual dividend growth in the future.
W.P. Carey
W.P. Carey is a real estate investment trust (REIT) focused on investing in high-quality, operationally critical real estate. It owns single-tenant industrial, warehouse, retail, self-storage, and other properties secured by long-term net leases with built-in rent escalations. These leases provide the REIT with very stable and steadily rising rental income.
The landlord pays out 70% to 75% of its rental income in dividends, retaining the rest to reinvest in additional income-producing properties. The REIT also has a strong investment-grade balance sheet, providing it with additional flexibility to expand its portfolio. These new investments, along with rental increases, will grow W.P. Carey’s adjusted FFO per share. W.P. Carey currently expects to invest between $1.4 billion and $1.8 billion into new properties this year, which should grow its adjusted FFO by around 4.5% per share.
W.P. Carey aims to grow its dividend by around the same rate as its adjusted FFO. It has raised its payment every quarter since resetting it in late 2023 following its strategic decision to exit the office sector, including by 3.4% over the past year.
High-quality dividend stocks
Energy Transfer, Brookfield Infrastructure, and W.P. Carey pay high-yielding dividends that are well supported by their stable cash flows. They have ample financial flexibility to continue growing their operations and dividend payments. That makes them ideal dividend stocks to buy this September to turn idle cash into a lucrative and growing passive income stream.
Matt DiLallo has positions in Brookfield Infrastructure, Brookfield Infrastructure Partners, Energy Transfer, and W.P. Carey. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
