I'm on a journey toward financial independence. A key aspect of my strategy is to grow my passive income streams. I'm working toward generating enough income to offset my recurring expenses.
I still have a long way to go, but I'm making steady progress. I'm doing that by investing in high-quality dividend stocks, focusing on those with higher-yielding payouts that steadily rise. I recently bought a few more shares of Chevron (CVX +0.02%), Realty Income (O +0.26%), and Verizon (VZ 0.12%). Here's why I believe they will help me on my journey toward financial freedom.
Plenty of fuel to grow its payout
NYSE: CVX
Key Data Points
Chevron is an elite dividend stock. The oil giant has increased its payout for 37 straight years. It has grown its dividend faster than the S&P 500 over the last five years and at more than double the rate of its closest peer. Its most recent boost was a solid 8%.
I firmly believe Chevron can continue growing its attractive dividend (it currently yields 4.2%). In recent years, the company has sharpened its investment focus on its highest-return opportunities. That bolsters its view that it can increase its free cash flow per share by more than 10% annually through 2027. This forecast assumes that oil will average around $60 per barrel. It would give the oil giant the cash to continue investing in high-return expansion projects, increasing its dividend, and repurchasing shares at the low end of its $10 billion-$20 billion target range.
Chevron could grow its free cash flow even faster at higher prices (crude is currently over $80 a barrel). Meanwhile, it has agreed to buy rival Hess in a roughly $60 billion deal. That acquisition would enhance and extend its growth outlook into the 2030s. Chevron believes it could double its free cash flow by 2027 at $70 oil if it closes its Hess acquisition. Given these factors, Chevron should have more than enough fuel to continue paying and raising its high-yielding dividend.
As consistent as it gets
NYSE: O
Key Data Points
Realty Income has lived up to its name over the years. The real estate investment trust (REIT) has supplied its investors with durable dividend income. It pays a monthly dividend, which it has increased 124 times since its public-market listing in 1994, including the last 106 consecutive quarters. It has boosted that payout at a 4.3% annual rate.
The REIT should have no problem continuing to increase its high-yielding payout (currently 6%). It aims to grow its adjusted funds from operations (FFO) per share by 4% to 5% annually. Acquisitions are the main expansion driver. Realty Income invests billions of dollars each year to acquire and develop additional income-producing real estate. The company has lots of financial flexibility to fund new deals thanks to its conservative dividend payout ratio (roughly 75% of its adjusted FFO) and elite balance sheet.
Realty Income has a massive growth runway. The total addressable market for properties it could acquire across the U.S. and Europe is a staggering $13.9 trillion. It has lengthened that runway by expanding into new property verticals like data centers, gaming, and additional European countries.
A cash-flow machine
NYSE: VZ
Key Data Points
Verizon is a monster dividend stock. The telecom giant currently yields 6.7%. That hefty payout is on an increasingly firm foundation.
The company generates significant cash flow. It produced $37.5 billion in cash flow from operations in 2023, easily covering its $18.8 billion in capital expenditures and $11 billion in dividend payments. That enabled it to generate excess free cash to further strengthen its already solid investment-grade balance sheet.
Verizon should continue producing strong free cash flow in the future. It has invested heavily in building its 5G infrastructure, which should increase its revenue and cash flow. Meanwhile, capital spending is coming down (it should be between $17 billion and $17.5 billion in 2024). The telecom is also working to cut $2 billion to $3 billion in operating costs by 2025, while interest expenses should fall as it repays debt. These catalysts should grow its free cash flow, enabling Verizon to continue raising its dividend, something it has done for 17 straight years.
High-quality income stocks
Chevron, Realty Income, and Verizon check all the boxes for me. The two biggest are that they pay higher-yielding dividends that should continue rising in the future. That's why I recently bought a few more shares. I expect to continue adding to these positions because I believe they'll help me on my quest to reach financial freedom through passive income.
