If you're looking to grow your passive income stream with dividend stocks, there are plenty of super-high-yield options. Unfortunately, high dividend yields are usually a sign that the stock market has lost confidence in a company's ability to raise its dividend obligation over time.
These three stocks offer the unusual combination of a high dividend yield at the moment and a solid chance to maintain and raise their payouts in the years to come.
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1. Verizon
An investment of $43,800 is enough to generate $3,333 in annual dividend income from Verizon (VZ 1.17%) at the moment, plus the company's known for steadily raising its payout. Last September, the telecom giant raised its dividend payout for the 16th consecutive year.
At recent prices, the stock offers a big 7.6% yield, and shareholders can reasonably expect another bump in a couple of months. Second-quarter earnings per share contracted by 11% year over year to $1.10 per share. The earnings contraction was disappointing, but the company is still earning more than enough to cover a quarterly dividend set at $0.652 per share.
Verizon reported declining sales of wireless equipment in the second quarter, but this wasn't too troubling because this is some very low-margin revenue. Overall, investors were encouraged by the telecom giant's recent performance -- relatively high-margin service revenue climbed 3.8% year over year.
In addition to an improving revenue mix, capital expenditures are shrinking now that much of its 5G network is already built. As a result, free cash flow in the first half of 2023 rose 11% year over year to $8 billion.
At the moment, Verizon has just 2.3 million fixed wireless subscribers, but growth is accelerating. Verizon added 384,000 fixed wireless subscribers in the second quarter, which was 50% more than it added in the previous-year period. With fixed wireless services pushing the needle forward, investors can look forward to many more years of steady dividend raises.
2. Ares Capital
Ares Capital (ARCC 0.73%) is a large business development company (BDC) that essentially acts as a lender to many of the midsized businesses that large banks tend to ignore. BDCs make great stocks for income-seeking investors because they can avoid paying taxes by distributing at least 90% of profits as a dividend.
Ares Capital's dividend payout is less predictable than Verizon's, but it also offers investors a larger yield of 9.9% at the moment. About $33,700 is enough to set yourself up with $3,333 in annual dividend payments from this stock.
Ares Capital doesn't lend to every business that comes calling. Instead, its portfolio consists of loans to 475 companies backed by 225 different private equity sponsors.
Investors concerned that rising interest rates would make it impossible for many of Ares Capital's borrowers to keep up with payments can take a deep breath. The value of loans on nonaccrual status at the end of the second quarter fell to 1.1% of the estimated value of the portfolio, from 1.3% three months earlier.
Ares Capital doesn't raise its dividend in steady annual increments, but its quarterly payout has risen by 23.1% over the past five years. By selectively lending to cash-generating businesses that can repay their loans, many more years of progress seems likely.
3. Medical Properties Trust
Medical Properties Trust (MPW -1.10%) is a real estate investment trust (REIT) that owns hundreds of hospitals and related acute care facilities. Like BDCs, REITs can avoid paying income taxes by distributing nearly all their earnings to investors as a dividend.
Rather than manage the facilities it owns, Medical Properties Trust simply collects rent from more than 50 independent hospital operators. Its cash flows are generally reliable because it makes operators sign long-term net leases that transfer variable expenses associated with building ownership, such as maintenance and taxes, to the tenant.
This healthcare REIT offers investors an eye-popping 11% yield at recent prices because one of its larger tenants, Prospect Medical, has been unable to pay its rent this year. With such a high yield, an investment of just $30,400 is enough to secure $3,333 in annual dividend income.
In April, Medical Properties Trust told investors that it expects normalized funds from operations (FFO) to reach $1.50 per share in 2023, even if Prospect Medical doesn't pay rent for the entire year.
Even in a worst-case scenario, Medical Properties Trust's FFO estimate is more than sufficient to maintain a payout currently set at $1.16 annually. Plus, new financing that Prospect received in May could help it bounce back more quickly than previously expected. Adding some shares of this REIT to a diversified portfolio looks like a great way to boost your passive income stream.
