Dividend income offers a great way to strengthen your overall financial position. It can potentially make you less dependent on the income you earn from a job, maybe even allowing you to work less or retire earlier than planned. Money doesn't buy happiness, but being less dependent on work to fund your lifestyle could be a contributor to a happier, less stressful life.
A great way to build up dividend income is to invest in high-yielding dividend stocks that also happen to be lower-risk investments. Pfizer (PFE -1.35%), Realty Income (O -0.91%), and Bank of Nova Scotia (BNS -0.03%) are three attractive investments that you'll want to consider if you want to create a strong portfolio of income-generating stocks.
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Pfizer
If you're looking for a high-yielding stock to hold for the long term, Pfizer is one you'll want to strongly consider. At 7.4%, its yield right now is more than five times what you'd get with the average stock on the S&P 500, which pays about 1.3%.
Pfizer's stock is trading down more than 10% this year (as of the end of last week), as it can't seem to catch a break. While its valuation is modest -- it trades at 17 times its trailing earnings -- concerns about healthcare reform and the company's future growth prospects have made investors uneasy about the business and investing in it.
But the healthcare company is still doing well and is on track to hit its guidance, which calls for revenue between $61 billion and $64 billion this year (comparable to how it did last year). It is also slashing costs to improve its bottom line. And it has been less than two years since it acquired oncology company Seagen, which may unlock more long-term growth for Pfizer in the future. Last year, the company also obtained approval from regulators for its first gene therapy in the U.S. -- Beqvez, a treatment for a genetic bleeding disorder.
There's some uncertainty and risk with Pfizer, but there are opportunities as well. And at such a modest valuation, now can be an excellent time to add it to your portfolio. Pfizer has been a big name in healthcare for decades, and I don't think that's likely to change anytime soon.
Realty Income
One dividend stock I think all income investors should consider owning is Realty Income. This is a real estate investment trust (REIT) that not only offers a high yield of 5.8%, but it also pays a dividend every month. There's no need to wait around for multiple months, as is the case with other dividend stocks; with Realty Income, you're getting a much more regular stream of cash flow.
The REIT has a diverse mix of tenants, which makes it an ideal option for long-term investors. It's diversified across industries and geographies, with more than 1,500 clients across 91 industries.
The dividend remains well supported -- the REIT reported funds from operations (FFO) per share of $1.05 during the first three months of the year (versus $0.94 a year ago). That averages out to $0.35 per share per month, which is higher than the rate of its monthly dividend of $0.2685.
REITs use FFO to assess how much they can afford to pay in dividends, and with Realty Income's financials looking solid, there aren't any significant risks with its payout. Share prices of Realty Income are up 5% this year, and this can be a great income-generating investment to add to your portfolio for the long haul.
Bank of Nova Scotia
Rounding out this list of high-yielding dividend stocks is Canada-based Bank of Nova Scotia, also known as Scotiabank. At around 6%, that's a high payout for a top bank stock that is known for long-term stability. It declared its first dividend back in 1833 and has continued making regular payments since then.
The bank increased its provision for credit losses in its most recent quarter, in a sign of growing concern about macroeconomic conditions. Scotiabank's net income totaled over $2 billion Canadian dollars for the period ending April 30, which was nearly identical to its bottom line in the prior-year period. There are concerns about how the Canadian economy may perform in the near future due to tariffs, but in the grand scheme of things, that may prove to be a short-term concern for investors who are willing to hang on for years. Scotiabank's impressive track record and resilience over the years should inspire some confidence in the business.
The bank stock has increased its dividend by more than 22% in four years and can be an excellent option to hang on to for the long term. Not only can you collect a high yield today, but the dividend income you get from this investment can rise over the years.
