Would you like to widen the stream of passive income you can expect each year? Managing rental property is an option, but most retirees find this method less passive than they would like it to be.
Investors who are attracted to truly passive income generation may want to consider AT&T (T +0.85%), PenantPark Floating Rate Capital (PFLT 1.11%), and Pfizer (PFE 1.61%). They offer an average yield of 7.6% at recent prices, so about $1,320 spread evenly among them is enough to set yourself up with $100 in annual dividend income.
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Stocks generally don't offer yields this high unless there are concerns about the underlying businesses. Investors shouldn't expect rapid dividend payout raises from these stocks in the near term. That said, each appears capable of maintaining their payouts and raising them significantly over the long run.
1. AT&T
AT&T cut its dividend in 2022 to compensate for the spin-off of its unpredictable media assets. The company hasn't raised the payout since slashing it a couple of years ago, and at recent prices, the telecom stock offers a 6.1% yield.
NYSE: T
Key Data Points
AT&T racked up a lot of debt building out its 5G infrastructure. At the end of March, the company's net debt level was 2.9 times the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) it generated over the past 12 months.
Now that the heaviest investments regarding its 5G network are in the rearview, profitability is rising. First-quarter free cash flow jumped to $3.1 billion from just $1 billion in the previous-year period.
With strengthening cash flows driven by new broadband and wireless internet service subscriptions, AT&T thinks its net debt level will fall to 2.5 times adjusted EBITDA in the first half of 2025. Management hasn't made any explicit promises, but the dividend will most likely start rising again once the company reaches this debt repayment goal.
2. PennantPark Floating Rate Capital
PennantPark Floating Rate Capital (PFLT 1.11%) is a business development company (BDC), which means it can avoid paying income taxes by distributing nearly all its profits to shareholders as a dividend.
NYSE: PFLT
Key Data Points
At recent prices, PennantPark Float Rate Capital offers a huge 10.7% dividend yield. The BDC only raised its payout by 7.9% over the past five years. With such a high yield to start, though, investors who buy now could realize market-beating gains if it can maintain its payout over the long run.
PennantPark and BDCs like it essentially act as lenders to middle-market businesses that are too large for small business loans but still too small to get a loan from traditional American banks. Starved for capital, this BDC's clients are willing to borrow at higher interest rates than you might expect for senior secured loans. Plus, as its name implies, nearly all the loans on its books collect interest at floating rates that have risen sharply in recent years.
The average yield on debt investments in PennantPark's debt portfolio reached 12.3% at the end of March, and investors can rely on its borrowers to keep up with payments. Despite charging relatively high interest rates, just one portfolio company representing just 0.4% of its total portfolio was on non-accrual status at the end of March.
3. Pfizer
Shares of Pfizer have lost more than half their value since the stock peaked in late 2021. In a nutshell, sales of its COVID-19-related products collapsed much faster than the stock market had expected.
NYSE: PFE
Key Data Points
Although Pfizer's stock price is down, the pharmaceutical company has steadily raised its dividend payout since 2009. At its beaten-down price, the stock offers an eye-popping 6.1% yield that could keep rising for another 15 years.
Now that the worst COVID-19-related sales declines are in the past, a slew of potential new blockbusters can drive Pfizer's earnings and dividend steadily higher.
Last year, Pfizer earned approvals from the Food and Drug Administration for nine new drugs, and the ones it already markets are surging in popularity, too. In the first quarter alone, the company reported sales that grew 10% year over year or better for seven drugs in its product lineup.
