These companies can generate a growing stream of passive income.
Investing in dividend stocks can be a great way to build your passive income. Many companies pay a portion of their profits to investors via dividends.
While the average dividend stock yields around 1.5% these days (based on the S&P 500’s yield), many offer even bigger payments. Kinder Morgan (KMI 1.79%), Verizon (VZ -0.16%), Brookfield Infrastructure Partners (BIP 0.03%), and Agree Realty (ADC 0.70%) stand out for their payouts. All four companies offer dividends yielding 4% or more. Further, they have excellent records of increasing their payments.
Piping passive income into your portfolio
Kinder Morgan currently yields more than 5%. The pipeline giant backs that high-yielding dividend with very stable cash flow. Roughly 68% comes from take-or-pay agreements and hedging contracts that pay the company a fixed rate regardless of volumes and commodity prices. Meanwhile, most of its remaining earnings come from assets that generate fee-based cash flow with limited fluctuations based on their volume exposure.
The company pays out about half of its stable cash flow in dividends. It retains the rest to fund its expansion while maintaining its strong balance sheet.
Kinder Morgan currently has $5.2 billion in high-return expansion projects underway that will grow its cash flow over the next few years. It also uses its financial flexibility to make accretive acquisitions (it bought STX Midstream for about $1.8 billion late last year). These growth catalysts should give it more fuel to increase its dividend. Kinder Morgan delivered its seventh consecutive year of dividend growth in 2024.
Your connection to a prodigious passive income stream
Verizon offers a dividend yield of more than 6% these days. The telecom giant recently delivered its 18th straight year of dividend growth. That’s the longest current streak in the U.S. telecom sector.
The mobile and broadband company generates lots of cash. Its operating cash flow totaled $16.6 billion during the first half of this year, enough to cover its capital expenses ($8.1 billion) and dividend payments ($5.6 billion) with room to spare. It used that excess cash to strengthen its balance sheet.
Verizon’s steadily improving balance sheet is enabling it to bolster its fiber business by acquiring Frontier in a $20 billion all-cash deal. That acquisition should eventually help grow its free cash flow, which should allow it to repay that debt. Meanwhile, its capital investments to grow its fiber and 5G businesses should also help increase its cash flow. These drivers should enable Verizon to continue extending its dividend growth streak in the coming years.
More income from this option
Brookfield Infrastructure Partners currently offers a dividend yield approaching 5%. That’s much higher than its corporate twin, Brookfield Infrastructure Corp. (BIPC -0.35%), which provides a payout approaching 4%. The only difference is that the publicly traded limited partnership sends its investors a Schedule K-1 federal tax form each year, while the corporation provides an easier-to-file 1099-Div Form.
The economically equivalent entities pay the same quarterly dividend payment, which they plan to grow by 5% to 9% annually. That would extend Brookfield Infrastructure’s already excellent streak of increasing its payment (15 straight years). The global infrastructure operator generates stable and growing cash flow to cover its lucrative payout. The company sees a combination of inflation escalators, volume growth, capital projects, and acquisitions powering more than 10% annual FFO–per-share growth in the coming years.
Lots of growth left
Agree Realty currently yields 4%. The retail REIT has grown its dividend, which it pays monthly, at a 5.7% compound annual rate over the last 10 years.
The real estate investment trust focuses on owning freestanding properties net leased or ground leased to high-quality retail tenants. Nearly 70% of its rent comes from national or regional tenants with investment-grade credit ratings. Meanwhile, top tenant sectors are retailers resilient to the pressures of e-commerce and recessions, like grocery stores, home improvement centers, and tire and auto service locations.
Agree Realty steadily grows its portfolio of income-producing properties by making acquisitions or investing in development projects. It has a strong balance sheet and a very long growth runway. Its current tenants still own over 166,000 of their locations, a massive total addressable market opportunity for the roughly 2,200-property REIT.
Steadily rising passive income
Kinder Morgan, Verizon, Brookfield Infrastructure Partners, and Agree Realty offer dividend yields above 4%, backed by stable cash flows and strong financial profiles. Further, this quartet has done an excellent job growing their payouts over the years, which seems likely to continue. Those features make them excellent dividend stocks to buy for those seeking attractive, steadily rising streams of passive income.
Matt DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Kinder Morgan, and Verizon Communications. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool recommends Brookfield Infrastructure Partners and Verizon Communications. The Motley Fool has a disclosure policy.