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Investing $100,000 in These 3 Dividend Stocks Could Give You Annual Income of $7,700

By Keith Speights - Oct 24, 2021 at 5:52AM

Key Points

  • Devon Energy offers a unique fixed-plus-variable dividend that gives it the highest yield in the S&P 500.
  • Enterprise Products Partners has a high yield and solid growth prospects.
  • Wall Street thinks GlaxoSmithKline could soar 20%, a nice bonus to the drugmaker's juicy yield.

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And perhaps even more in share price appreciation.

Different investors have different goals. The closer you get to retirement, dividend income will rank higher among your investing objectives.

Many dividend stocks won't provide all that much income each year. However, some could help you considerably in retirement. Investing $100,000 spread across these three dividend stocks could give you added income of close to $7,700 per year.

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Image source: Getty Images.

1. Devon Energy 

You won't find an S&P 500 stock that offers a higher dividend yield than Devon Energy ( DVN -2.90% ). Investing one-third of your initial $100,000 should make you in the ballpark of $3,330 in annual dividend income -- and perhaps even more.

There's a catch with Devon's dividend, though. Only a small part of the distribution is fixed. Most of its dividend is variable based on a 50% payout of excess free cash flow. It's possible that your annual income could be lower in the future than it would be now. 

However, Devon's near-term future looks great. The market appears to be in the early stages of another energy upcycle. The company's assets should deliver strong free cash flow with oil prices higher than they've been in recent years.

You can also rest assured that Devon is committed to its dividend program. The company has paid dividends for 28 consecutive years. It has also increased its dividend payout by a compound annual growth rate (CAGR) of over 10% since 1993.

2. Enterprise Products Partners

Enterprise Products Partners ( EPD -1.73% ) doesn't have any catches with its dividend. The midstream energy company's dividend yield currently stands at 7.3%. If you used another third of your $100,000 to buy shares of Enterprise, you'd receive income of roughly $2,440 per year.

Like Devon, Enterprise Products Partners places a high priority on its dividend program. The company has increased its distribution for 22 years in a row. The dividend CAGR during that period is around 7%. 

You just might get impressive share appreciation along with the nice income by investing in Enterprise. Wall Street analysts think the stock could jump more than 15% over the next 12 months. 

What about the shift away from fossil fuels to renewable energy sources? That's almost certainly an unstoppable trend. However, Enterprise's management believes that the lower-emission natural gas, natural gas liquids, and lower-sulfur crude oil that are at the core of its business will remain a key source for energy production for a long time to come. The company's dividend payments shouldn't face serious threats of disruption anytime soon. 

3. GlaxoSmithKline

If you've been adding the numbers, we're up to $5,770 per year with Devon's and Enterprise's dividends. Investing the remaining amount of your $100,000 in GlaxoSmithKline ( GSK 0.61% ) will provide nearly $1,900 and get your total annual income from these stocks to close to $7,700.

Wall Street is especially bullish about GlaxoSmithKline. The consensus 12-month price target for the stock reflects an upside potential of around 20%.

Analysts' optimism centers in large part on GlaxoSmithKline's HIV drugs, which continue to deliver strong sales growth. The drugmaker also has rising stars including respiratory therapies Nucala and Trelegy Ellipta, lupus drug Benlysta, and cancer drug Zejula.

There's one thing to keep in mind with GlaxoSmithKline, though. The company plans to spin off its consumer healthcare unit next year (or, based on recent rumors, sell it to a private equity firm).

With this move, GlaxoSmithKline will likely reduce its dividend by around 31%. That would cut your annual dividends from these three stocks to close to $7,000. I suspect most retired investors would still be happy with that level of supplemental income.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

GlaxoSmithKline plc Stock Quote
GlaxoSmithKline plc
GSK
$41.37 (0.61%) $0.25
Devon Energy Corporation Stock Quote
Devon Energy Corporation
DVN
$40.84 (-2.90%) $-1.22
Enterprise Products Partners L.P. Stock Quote
Enterprise Products Partners L.P.
EPD
$21.02 (-1.73%) $0.37

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

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