Investing in dividend-paying stocks is a great way to start collecting passive income. Since most don't cost that much money, you can steadily buy more shares as you have cash available to invest.
Many excellent dividend stocks cost less than $50 a share. Brookfield Infrastructure Corporation (BIPC 2.44%) (BIP 2.40%), NNN REIT (NNN 0.53%), and Verizon (VZ 0.39%) are three great ones. Here's why those seeking to start collecting dividend income should consider this trio.
Visible dividend growth ahead
Brookfield Infrastructure Corporation currently trades at around $47.75 a share. That puts its dividend yield at around 3.3%, given its current payout rate of $0.385 per share each quarter. That's almost double the 1.7% dividend yield of an S&P 500 index fund.
Brookfield Infrastructure has increased its dividend payment each year since its formation. It gave investors a 6% raise earlier this year, marking its 14th straight year of dividend growth. The company expects that upward trend to continue. It's targeting to grow its dividend by 5% to 9% per year over the long term.
Several factors drive the company's dividend growth outlook. Its organic growth drivers (inflation-linked contracts, volume growth as the global economy expands, and expansion projects) should increase its funds from operations (FFO) by 6% to 9% per share each year. Brookfield also has an active capital recycling program of selling mature assets and reinvesting the proceeds into higher returning opportunities. It recently agreed to acquire a European data center platform and a leading container leasing company. These accretive investments will pad its bottom line.
Finally, Brookfield has a reasonable dividend payout ratio (60%-70% of FFO), giving it a nice cushion while allowing it to retain cash to fund new investments. Finally, it has a strong investment-grade balance sheet. These factors put its payout on a very firm foundation.
This straightforward strategy has delivered steady dividend growth
NNN REIT, formerly National Retail Properties, sells for around $43.50 a share. That gives it a dividend yield of about 5.1% at its current payout rate of $0.55 per share each quarter.
The company has increased its dividend for an impressive 33 straight years. That puts it in an elite group. It's one of only three REITs and 78 publicly traded U.S. companies with 33 or more years of consecutive dividend increases.
The REIT has a very straightforward strategy. It invests in single-tenant retail properties triple net leased (NNN) to high-quality tenants with limited exposure to the pressure of an economic downturn and e-commerce. This lease structure makes the tenant responsible for the variable costs of building insurance, maintenance, and real estate taxes. That enables NNN REIT to generate very stable rental income to support its dividend.
The company has a relatively low dividend payout ratio for a REIT (67% of its adjusted FFO), enabling it to retain cash to fund new investments. It also has a solid balance sheet, giving it additional financial flexibility to fund property acquisitions. The REIT's growing portfolio supports a steadily rising dividend.
Strong and improving free cash flow support this big-time dividend
Shares of Verizon trade at around $36.25 apiece. That gives the telecom giant a 7.2% dividend yield at its current payout rate of $0.6225 per share each quarter.
Verizon has increased its dividend for the past 16 straight years. That's the longest current streak of payout bumps in the U.S. telecom sector.
The company can easily support that big-time payout. Verizon generated $37.1 billion in cash from operations last year. This cash flow easily covered its capital spending ($23.1 billion) and dividend outlay ($10.8 billion) with room to spare ($3.3 billion). That enabled it to strengthen its already solid balance sheet.
The company should produce more free cash flow in the coming years. Verizon's growth-related investments and cost-cutting initiatives should boost its cash flow from operations. Meanwhile, it expects capital spending to be in the range of $18.3 billion-$19.3 billion in 2023 and fall to around $17 billion next year. That will give the company more money to pay dividends and further strengthen its balance sheet.
Great ways to start building dividend income
Brookfield Infrastructure Corporation, NNN REIT, and Verizon are great dividend stocks. They offer above-average yielding payouts that they've steadily grown over the years, which should continue. Given their sub-$50 share prices, they're great options for those who don't have much cash to invest but want to get started earning some passive dividend income.
