If you want to retire with a steady stream of passive income, there are more than a few ways to make it happen. Acquiring rental properties is one of the most popular methods, but managing properties and finding tenants who can reliably pay their bills makes this method less passive than many retirees would like it to be.
Investors who want to generate a truly passive income should consider these dividend-paying stocks. These businesses have strong advantages that allow them to generate profits that have grown reliably for decades.
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At recent prices, these three stocks offer a 6.4% yield on average. This means an up-front investment of $1,580 spread evenly among them is more than enough to produce $100 in dividend income over the next 12 months.
The exceptional businesses underlying these three stocks have what they need to steadily raise their dividend payouts. Read on to see how the payments they deposit in your brokerage account could rise a great deal by the time you're ready to retire.
1. Verizon
The past several years have been frustrating ones for Verizon (VZ +0.28%) shareholders. The telecommunications giant has raised its quarterly payout for 17 consecutive years, but you wouldn't know it by looking at its chart. The stock is about 36% below the peak it set in 2019.
NYSE: VZ
Key Data Points
At recent prices, shares of Verizon offer a juicy 6.7% yield, and investors can reasonably expect more in the years to come. Landline phones and wireline internet connections are becoming scarce, but the company's 5G infrastructure investments are offsetting those losses.
Last year, total revenue fell 2.1% due to lower sales of smartphones and other equipment, but revenue from services remained flat.
Now that Verizon's largest 5G investments are in its rearview mirror, profits available to distribute as dividends are soaring. Free cash flow rose 33% to $18.7 billion in 2023. As one of three telecom companies operating a large 5G network in the U.S. market, we can reasonably expect Verizon's profits and dividend payout to continue rising for at least another decade.
2. AT&T
In 2022, AT&T (T 0.40%) sold its media assets and cut its quarterly dividend payout in half. The stock has declined too since then, and at recent prices, it offers a big 6.5% yield.
NYSE: T
Key Data Points
Now that AT&T runs a straightforward telecom operation similar to Verizon's, investors can look forward to the return of annual payout raises. In 2023, total revenue rose 1.4%, driven by consumer broadband sales. AT&T Fiber added 1.1 million new subscribers in 2023, making it the sixth year in a row with more than 1 million new signups.
AT&T is years behind T-Mobile and Verizon, but it finally launched a new fixed wireless option that should keep sales and profits moving in the right direction for at least another decade.
3. Realty Income
Realty Income (O +0.24%) is a real estate investment trust (REIT) that buys commercial properties and rents them to companies like Walgreens, Dollar General, and FedEx.
NYSE: O
Key Data Points
The REIT has reported positive earnings growth for 26 of the past 27 years by employing net leases that transfer all the variable costs of building ownership to the tenant. Realty Income doesn't operate its buildings. Instead, it ensures a steadily growing stream of rental payments with annual rent raises written into long-term leases.
Income-seeking investors appreciate Realty Income's monthly dividend payments and steady increases. The company recently raised its payout for the 106th consecutive quarter to an annualized $3.084 per share.
At recent prices, Realty Income offers a 5.9% yield that could rise significantly over the next several years. Management expects adjusted funds from operations (FFO), a proxy for earnings used to evaluate REITs, to rise about 4% this year to a range between $4.13 and $4.21 per share.
In January, Realty Income significantly expanded its portfolio with a 9.3 billion acquisition of a smaller net lease REIT named Spirit Realty. The company still has an A3 credit rating from Moody's that will allow it to continue consolidating the fragmented net lease industry, as well as grow its dividend payout, for many years to come.
