David Jagielski, The Motley Fool
·5 min read
Dividend stocks can be powerful tools in helping investors battle inflation in the long run. They can provide you with a recurring source of income that (ideally) rises over time and helps build up your wealth. Three stocks that pay more than double the S&P 500 average yield of 1.5% and that could be great places to invest in right now include Verizon Communications (NYSE: VZ), Pfizer (NYSE: PFE), and Realty Income (NYSE: O). If you can afford to invest $33,000, here's how you can spread that out over these three stocks to generate at least $2,000 in annual dividends.
Verizon Communications: $15,000
Telecom giant Verizon Communications pays an incredibly high yield of 6.4% right now, which is far higher than normal for this top dividend stock. Investing $15,000 into the stock would mean you can expect to collect $970 annually from the dividend Verizon pays.
Verizon has also increased its dividend payments for 17 consecutive years, which is the longest streak in the U.S. telecom industry. The company's CEO believes that the stock is a potential substitute for bonds given its reliable dividend income. That suggests that if interest rate cuts happen this year, Verizon's stock could be in high demand as investors potentially pivot from bonds into dividend stocks.
Rising interest rates haven't helped Verizon's stock, as it is down 1% in the past 12 months. But what's important is that the payout remains safe. In 2023, the company's free cash flow rose to $18.7 billion versus $14.1 billion a year earlier. While operating revenue was down 2% to $134 billion, the improved cash position suggests that not only is the current yield safe, but also that Verizon's dividend growth steak is likely to continue.
Pfizer: $13,000
Another stock that's paying a higher-than-normal yield is Pfizer. The pharma giant's shares have fallen close to 40% in just the past 12 months. Its dividend yield is slightly lower than Verizon's at 6.2%, but that's still a fairly high payout for investors. If you were to buy $13,000 worth of Pfizer shares, your annual dividend income from that investment could total approximately $792.
Pfizer recently boosted its dividend by a penny to $0.42. It has steadily increased its payout since 2010, and the healthcare company has paid a dividend for more than 340 consecutive quarters -- that's a span of more than 85 years.
The risk with the stock today is that Pfizer is in the midst of a transition as it moves away from COVID-19 products and focuses on new growth opportunities, which are partly fueled through acquisitions. In 2023, the company's sales were down 42% to $58.5 billion, largely due to a significant decline in COVID vaccinations.
Last year, Pfizer closed a mammoth $43 billion acquisition of cancer specialist Seagen, which will be a big part of its long-term turnaround plan.
There's some risk with Pfizer due to the uncertainty that lies ahead, but given its track record and ability to innovate and grow over the years, this is still a fairly proven and established company to invest in. Plus, with an estimated forward price-to-earnings ratio of just 12, investors are getting the stock at a good discount.
Realty Income: $5,000
A real estate investment trust (REIT) like Realty Income makes for another promising dividend investment. Like Verizon, it has struggled due to rising interest rates, as its share price is down 22% over the past year. Its yield is around 5.7%, and investing $5,000 in the REIT would mean that you could earn around $286 in dividends over the course of a full year. When combined with the other investments on this list, your annual dividend income would now total at least $2,048.
What makes Realty Income attractive is its diversification. The REIT's portfolio isn't heavily exposed to one industry or area of the economy; its tenants are in 85 industries. Its occupancy rate is also just under 99%. Despite what its struggling share price may suggest, Realty Income isn't a highly risky investment to be holding.
When the company last released earnings in November, Realty Income's funds from operations, a key metric for REITs, increased by 7% to $1.04 per share for the quarter ending Sept. 30, 2023. And what may sweeten the deal for investors is that unlike most other dividend stocks, Realty Income distributes payments to investors on a monthly basis. Currently it pays nearly $0.26 per share in its monthly dividend.
Realty Income can make for a great dividend stock to buy and hold for the long term given both its high yield and its diverse portfolio mix.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer and Realty Income. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
Want to Earn $2,000 in Annual Dividend Income? Invest $33,000 in These 3 Stocks. was originally published by The Motley Fool
