I think I have an addiction to buying dividend stocks. I love collecting the passive income they provide, which I often reinvest into buying additional dividend-paying stocks. As my passive income grows, I become more financially independent.
I recently bought even more shares of PepsiCo (PEP +0.79%), Main Street Capital (MAIN 0.60%), and Verizon (VZ +1.24%). Here's why I can't stop buying these high-quality, high-yielding dividend stocks.
Image source: Getty Images.
Treating its investors like royalty
PepsiCo likely needs no introduction. The global snacking and beverage company's portfolio includes iconic brands such as Pepsi, Gatorade, and Doritos. These brands generate durable cash flow to cover the company's 3.8%-yielding dividend, which is three times higher than the S&P 500's yield of 1.1%.
The company has a remarkable record of increasing its dividend. It raised its payment by another 5% last year, extending its growth streak to 53 consecutive years. That qualifies PepsiCo as a Dividend King as a company with 50 or more years of annual dividend increases.
NASDAQ: PEP
Key Data Points
PepsiCo's long-term target is to deliver 4% to 6% annual organic revenue growth and high-single-digit earnings per share growth. The company aims to enhance its growth rate through strategic investments. It bought Poppi for $1.7 billion last year and strengthened its long-term strategic partnership with Celsius, which included increasing its stake to 11%. These growth drivers should enable the company to continue increasing its dividend payment.
Dual income streams
Main Street Capital is a business development company (BDC). It provides debt and equity capital to lower middle market companies ($10 million to $150 million in annual revenue). It also makes secured debt investments in middle market companies ($25 million to $500 million in revenue) owned by private equity funds. These investments generate interest and dividend income to support the company's dividend payments.
NYSE: MAIN
Key Data Points
The BDC has a unique dividend policy. It pays a monthly dividend set at a level it can easily sustain. Main Street Capital has never reduced or suspended its monthly dividend. Instead, it has steadily raised its payment, including by 4% over the past year and by 136% since its IPO in 2007. This payment currently yields 4.8% based on the company's recent share price.
Additionally, Main Street Capital periodically pays a supplemental quarterly dividend. It has paid the same quarterly rate for the past couple of years. When added to its monthly dividend, the BDC has a 6.7% dividend yield based on its annualized payout and share price. With two passive income streams, Main Street Capital is an ideal investment for my strategy.
A big-time yield
Verizon also likely needs no introduction. The company provides mobile and broadband services to over 146 million customers. Verizon generates lots of recurring revenue as customers pay their cellphone and internet bills, which supports its 6.9%-yielding dividend.
NYSE: VZ
Key Data Points
The company generates about $20 billion in free cash flow each year after covering the capital expenditures required to maintain and expand its 5G and fiber networks. That easily covers its annual dividend payments, which total about $11.5 billion. The company uses the remaining cash to maintain its financial flexibility.
Verizon recently used some of its financial flexibility to acquire Frontier Communications in a $20 billion deal to bolster its fiber network. This deal should enhance its ability to cross-sell mobile and internet services to more customers, increasing its revenue and margins. Verizon's growth drivers should enable it to continue increasing its dividend, which it has done for the last 19 years in a row.
Padding my passive income
I recently bought even more shares of PepsiCo, Main Street Capital, and Verizon because they all pay high-yielding dividends. Even better, all three companies have strong records of increasing their payouts, which should continue. As a result, I should collect even more passive dividend income from them in the future, enabling me to reach financial independence even sooner.
