Investing in dividend stocks is an effective strategy for generating a substantial passive income. Many companies distribute a portion of their earnings to shareholders through dividends, which can be particularly rewarding for long-term investors. While the average dividend yield for stocks in the S&P 500 sits around 1.5%, some companies provide considerably higher returns. Among these, Kinder Morgan (NYSE: KMI), Verizon (NYSE: VZ), Brookfield Infrastructure Partners (NYSE: BIP), and Agree Realty (NYSE: ADC) distinguish themselves with yields exceeding 4%.
Diversifying Your Passive Income Streams
Kinder Morgan currently delivers an impressive yield exceeding 5%. This pipeline powerhouse supports its high dividend payout through solid cash flows. Approximately 68% of its revenue is derived from take-or-pay agreements and hedging contracts, ensuring predictable income streams regardless of market fluctuations. More notably, the company retains about half of its steady cash flow to fuel its expansion initiatives while upholding a robust balance sheet.
At present, Kinder Morgan has embarked on $5.2 billion worth of promising expansion projects set to bolster its cash flow in the upcoming years. By using its financial flexibility strategically, the company has made beneficial acquisitions, such as its recent $1.8 billion purchase of STX Midstream. Investors can expect continued dividend growth, as Kinder Morgan marks its seventh consecutive year of payout increases.
Verizon stands out in the telecommunications sector, offering a dividend yield of over 6%, coupled with an impressive 18-year streak of dividend growth. Naturally, the company generates substantial operating cash flow, totaling $16.6 billion in just the first half of this year. This cash flow comfortably covers its capital expenditures of $8.1 billion and dividend obligations of $5.6 billion, leaving ample room for further financial strengthening.
Verizon’s improving balance sheet positions it well for expansion, evidenced by its $20 billion all-cash acquisition of Frontier, aimed at enhancing its fiber network. This investment is expected to yield higher free cash flow, allowing the company to effectively manage its debt while expanding its prospects in the fiber and 5G arenas. Such strategic maneuvers should enable Verizon to maintain its impressive dividend growth trajectory.
Brookfield Infrastructure Partners, with a current yield around 5%, offers a lucrative option for income-seeking investors. This entity surpasses its corporate counterpart, Brookfield Infrastructure Corp. (NYSE: BIPC), which boasts a payout nearing 4%. Even though there are tax differences between the two—Brookfield Infrastructure Partners issues a Schedule K-1 form while its corporate twin offers a 1099-Div tax form—the economic benefits remain comparable.
With a commitment to increasing payouts by 5% to 9% annually, Brookfield Infrastructure has successfully grown its dividends for an impressive 15 consecutive years. The firm generates stable and increasing cash flow, thanks to factors such as inflation adjustment provisions, volume increases, capital projects, and acquisitions, driving anticipated growth exceeding 10% in funds from operations (FFO) per share in the years to come.
Lastly, Agree Realty, currently yielding around 4%, exemplifies a strong player in the real estate investment trust (REIT) sector. This REIT has a remarkable history of dividend growth, having increased payouts at a compound annual growth rate of 5.7% over the past decade. The trust specializes in acquiring freestanding properties net leased to top-tier retail tenants, with a notable 70% of its revenue coming from tenants with investment-grade ratings.
Agree Realty’s robust growth strategy includes continuous acquisitions and development projects while maintaining a solid balance sheet. Given the vast potential market with over 166,000 properties owned by existing tenants, the REIT is well-poised for future growth and income production.
A Promising Future for Passive Income Investors
In summary, Kinder Morgan, Verizon, Brookfield Infrastructure Partners, and Agree Realty are exceptional dividend stocks that yield above 4% and come backed by strong cash flows and compelling growth strategies. Their continued success in increasing dividends positions them as prime candidates for investors seeking stable and progressively rising streams of passive income.
Before diving into investments, it’s essential to conduct thorough research and consider each company’s performance and outlook. While opportunities in dividend-paying stocks can be enticing, aligning them with your long-term financial strategy and goals is key to achieving success. For those looking to enhance their investment portfolio, these four companies represent a strong foundation for building a reliable income stream.