Focusing on capital growth is one way to build a portfolio, but it can be stressful. Buy-and-hold investing can be a less stressful approach than individual stock selection, but there can still be periods of high volatility and turbulence.
Alternatively, one could place greater focus on a dividend-focused investment strategy, where the passive income grows the proverbial snowball over time, possibly turning a small stake into a fortune through the power of compounding.
How does one achieve this? By focusing on dividend stocks, particularly high-quality ones with a long track record of growing cash payouts. There are scores of stocks in this category, but these three, Enterprise Products Partners (EPD +1.03%), Realty Income (O +0.03%), and Procter & Gamble (PG 0.09%), stand out for their durable business models, long dividend growth track records, and steady cash flows.
Image source: Getty Images.
Enterprise Products Partners: In both bull and bear oil markets, own the tollbooth
Crude oil prices are significantly elevated right now, with uncertainty about where they will go next, but if one recalls when oil prices briefly went negative during the COVID-19 pandemic, energy prices are prone to volatility. For long-term passive income, that’s why selecting a midstream energy stock may be your best choice. A standout within this category is Enterprise Products Partners.
Enterprise Products Partners
Today’s Change
(1.03%) $0.39
Current Price
$38.42
Key Data Points
Market Cap
$82B
Day’s Range
$38.00 – $38.42
52wk Range
$28.26 – $39.73
Volume
8.3K
Avg Vol
4.6M
Gross Margin
12.86%
Dividend Yield
5.72%
A master limited partnership, Enterprise Products Partners doesn’t have shareholders. Instead, it has unit holders who hold an economic interest in this pass-through entity. But because of this pass-through status, all of this pipeline MLP’s profit flows directly to investors, with distributions, the equivalent of a dividend, taxed at the unit holder’s effective tax rate.
Because MLPs must distribute 90% of their taxable profits to unit holders and pipeline fees are less subject to price volatility, buying and holding MLPs can produce significant cash flow for your portfolio over time.
So, why pick Enterprise Products Partners in particular? Besides its solid 5.9% forward yield, the MLP has a 28-year track record of dividend growth. The largest pipeline operator in the United States, this MLP is also currently capitalizing on industry growth trends, such as developing pipeline networks for gas-powered artificial intelligence (AI) data centers.
Collect rent checks every month with Realty Income
Real estate ownership is a terrific way to generate passive income. However, direct ownership of real estate is hardly a passive endeavor. Unless you hire expensive professional property managers, expect calls about broken heaters in the middle of the night, tenants who fail to pay rent on time, and other headaches that make it practically another full-time job.
Today’s Change
(0.03%) $0.02
Current Price
$62.81
Key Data Points
Market Cap
$59B
Day’s Range
$62.31 – $62.90
52wk Range
$52.61 – $67.94
Volume
10K
Avg Vol
6.5M
Gross Margin
48.73%
Dividend Yield
5.15%
So why not skip this approach and go with a truly passive one instead, through ownership of high-quality REITs such as Realty Income? Literally trademarking the fact that it is a monthly dividend stock, investors in Realty Income collect steady dividend checks each month, thanks to the REIT’s profitable 15,000-property portfolio.
Geographically diversified, with holdings outside the U.S., Realty Income provides steady income with its 5.2% forward dividend yield. It also has a 32-year history of raising its dividend annually and has managed quarterly increases for the past 114 consecutive quarters (28.5 years). Admittedly, the quarterly increases tend to be small, but they are consistent, and they add up over time.
Realty Income’s dividend has grown by an average of 3.8% annually over the past 20 years. For those considering the slow-and-steady approach toward building a passive income machine, Realty Income, one of the best monthly dividend stocks, is a great choice.
Procter & Gamble is a Dividend King with 70 years of consecutive dividend growth
Procter & Gamble, the home products company, is one of the leading Dividend Kings, with 70 years of consecutive dividend growth. This long dividend growth streak isn’t surprising. After all, this top consumer staples stock represents ownership in a smattering of billion-dollar consumer staples brands, including Crest, Gillette, Pampers, and Tide.
Today’s Change
(-0.09%) $-0.13
Current Price
$144.77
Key Data Points
Market Cap
$337B
Day’s Range
$143.07 – $144.95
52wk Range
$137.62 – $171.65
Volume
18K
Avg Vol
11M
Gross Margin
51.11%
Dividend Yield
2.92%
Currently, Procter & Gamble has a forward dividend yield of nearly 3%. However, do not underestimate the amount of passive income an investment in stocks can generate over a long period. Generating steady profits in both bull and bear markets, the company can continuously raise payouts, albeit at a modest pace.
Over the past decade, Procter & Gamble has raised its dividend by around 5% annually, with dividend increases averaging nearly 6% over the past five years.
Put it all together, and you have a stock that can generate solid total returns over a multidecade time frame. Recession-resistant and arguably AI-proof, P&G is one of the top blue-chip dividend stocks and a strong choice for long-term investors.
Leave a comment