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3 Stocks That Pay You to Own Them

By Matthew DiLallo – Jul 10, 2016 at 12:00PM

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If you are looking to earn some passive income, don't pass on these stocks.

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Oil baron John D. Rockefeller once quipped to a neighbor that the only thing that gave him pleasure was to see his dividends coming in. There's a certain pleasure to be found in getting paid for work someone else performs, and therein lies the allure of dividend-paying stocks, which provide investors a passive income stream just for owning them. 

For investors who want to get more passive income out of their portfolios, here are three stocks that pay rather generous dividends. 

A growing dividend stream

Those who say money doesn't grow on trees don't know about timber REIT Weyerhaeuser (WY 1.76%). The largest private timberland owner in the U.S. made roughly $1 billion last year from trees. Furthermore, the company sent more than half of its earnings back to investors via dividends supporting a generous 4.1% yield. The only thing those investors had to do was buy the stock -- and, like Rockefeller -- watch the deposits flow their way.

Weyerhaeuser has a long history of paying dividends -- even before its 2010 conversion to a REIT, which means it's legally required to distribute at least 90% of its taxable income to shareholders each year as dividends. Even better, its annual payout has doubled over the past five years. While that growth rate is unlikely to repeat, the payout should still keep heading higher, driven by both cost cutting from increased operational efficiency, and an expected improvement in lumber prices. Best of all, investors won't have to work any harder to earn this growing income stream -- it just naturally flows their way.

A healthy dose of income

Healthcare REIT Medical Properties Trust (MPW 2.69%) cashes in on its vast real estate portfolio consisting primarily of hospital properties in the U.S. and Europe. Those holdings generated more than $250 million in cash flow last year, of which 75% to 80% gets paid out to investors annually. At the company's current share price, that amounts to a pretty healthy 6% yield.

Medical Properties Trust also has a long history of healthy dividend increases; its payout is up 15% since 2014. Investors can bank on additional hikes because the company is in the process of investing $190 million to construct new healthcare facilities for its tenants. Furthermore, it has  a habit of making accretive acquisitions.

A formula for dividend success

Oil refiner Valero Energy (VLO 0.27%) makes its money not from real estate, but from turning crude into higher-value petroleum products. Last year, the company made a whopping $4.6 billion thanks to low oil prices and robust gasoline demand. And, with limited need for that cash, the company was able to return an impressive $3.7 billion to investors via share buybacks and dividends.

Valero is aiming to return 75% of its net income to investors, though the bulk of that will happen via share repurchases. Still, at the company's current stock price, its dividend yield is a compelling 4.7%. Furthermore, the dividend does increase as share count drops and earnings rise. In fact, Valero's formula has delivered stunning dividend growth of 300% over the past five years. While the annual payouts probably won't grow quite that much over the next five years, as long as gasoline demand doesn't evaporate, they should continue to head higher.

Investor takeaway

Collecting passive income is one of the perks of investing. While a myriad of companies pay a dividend, Weyerhaeuser, Medical Properties Trust, and Valero not only pay more generously than most, but their payouts are poised to head higher in the future. That's why these stocks would be the first I would buy if I were looking to start collecting some dividend income.

Matt DiLallo owns shares of Medical Properties Trust and Weyerhaeuser and has the following options: short October 2016 $30 puts on Weyerhaeuser. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Valero Energy Stock Quote
Valero Energy
VLO
$135.20 (0.27%) $0.36
Weyerhaeuser Stock Quote
Weyerhaeuser
WY
$31.76 (1.76%) $0.55
Medical Properties Trust Stock Quote
Medical Properties Trust
MPW
$12.98 (2.69%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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