Investing in dividend-paying stocks can be a great way to generate passive investment income. Many companies pay attractive dividends, enabling investors to turn idle cash into an income stream.
Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), Stag Industrial(NYSE: STAG), Kinder Morgan(NYSE: KMI), and Kenvue(NYSE: KVUE) stand out as excellent dividend stocks. They offer high-yielding payouts that they should have no problem increasing in the future. At their current payout rates, they could turn $4,000 into almost $200 of passive income next year:
Dividend Stock | Current Yield | Investment | Annual Income |
|---|---|---|---|
Brookfield Renewable | 4.98% | $1,000.00 | $49.80 |
Kinder Morgan | 6.43% | $1,000.00 | $64.30 |
Stag Industrial | 4.05% | $1,000.00 | $40.50 |
Kenvue | 3.89% | $1,000.00 | $38.90 |
Total | 4.84% | $4,000.00 | $193.50 |
Data source: Google Finance.
A powerful dividend
Brookfield Renewable has been an excellent dividend stock over the years. The renewable energy producer has increased its payout by at least 5% annually for the last dozen years.
A few factors have helped power its growing dividend. Brookfield Renewable generates very predictable and growing cash flow. It sells the bulk of the power it produces under long-term power purchase agreements (PPAs). Those PPAs feature inflation-linked escalation clauses that increase power rates each year. The company also steadily expands its portfolio by investing in high-return development projects and making value-enhancing acquisitions. It funds those investments with retained cash flow after paying dividends, its strong balance sheet, and asset sales.
Brookfield's growth drivers have it on track to increase its funds from operations (FFO) per share by more than 10% annually through 2028. That easily supports the company's plan to increase its dividend by 5% to 9% per year. That puts investors in a position to earn a strong and steadily rising dividend income stream.
A steady grower
Stag Industrial built its business to generate income for its investors. The industrial REIT pays a monthly dividend. It has nudged up that payment every year since it went public in 2011.
The company also generates very stable and growing cash flow. It signs long-term leases with tenants for space in its warehouses and manufacturing facilities. Those leases typically contain escalation clauses that increase rents by an average of more than 2.6% per year. Meanwhile, as leases expire, it can often sign new ones at much higher rates (rents on leases signed this year have been 30% higher than the prior rate on the same space).
Stag Industrial also routinely acquires additional income-producing properties, funded with retained cash after paying dividends, asset sales, and its strong balance sheet. These drivers should continue growing its FFO per share, enabling Stag to steadily push its dividend higher.
A free-cash-flow machine
Kinder Morgan offers one of the highest dividend yields among S&P 500 members. The natural gas pipeline giant has done a solid job increasing its payout in recent years. It recently announced that it intends to raise its dividend by another 1.8% in 2024, its seventh straight year of dividend growth.
The company also generates very stable cash flow, backed by government-regulated rate structures and long-term, fixed-rate contracts. That gives it lots of visibility into its cash flow. It expects to produce $5 billion in cash next year, a 5% increase from 2023, fueled by strong conditions in the natural gas market and recently completed expansion projects. That number doesn't include its pending $1.8 billion acquisition of STX Midstream, which it expects will be accretive to its cash flow.
Kinder Morgan only expects to pay out about 52% of its cash flow next year in dividends. That's giving it money to fund expansion projects and maintain a strong balance sheet. Its financial strength allows it to be opportunistic in repurchasing its shares and making acquisitions (like STX Midstream).
A strong dividend heritage
Kenvue hasn't been paying dividends for very long. The consumer health products company initiated its payout in July following its separation from Johnson & Johnson. The healthcare behemoth has a tremendous record of paying dividends (the Dividend King has increased its payout for 61 straight years).
Kenvue is in an excellent position to continue with that tradition. It owns a portfolio of iconic healthcare product brands like Tylenol and Band-Aid that generate durable and growing cash flow.
The company expects to deliver healthy organic sales growth in the coming years as demand for its products continues rising. That will give it growing free cash flow to pay dividends, repurchase shares, maintain a healthy balance sheet, and make acquisitions as opportunities arise. It recently launched its inaugural share repurchase program, aiming to buy back up to 27 million shares to offset dilution from its stock-based compensation plans. That will help put it in a solid position to increase its dividends per share in the future.
Great income-producing stocks
Brookfield Renewable, Stag Industrial, Kinder Morgan, and Kenvue pay above-average dividends, making them ideal for those seeking to generate passive income. The companies should be able to continue growing their payouts in 2024 and beyond (Kinder Morgan has already stated its plan to increase its dividend next year). Because of that, they're a great way to turn idle cash into income in 2024.
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Matthew DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Johnson & Johnson, Kenvue, Kinder Morgan, and Stag Industrial. The Motley Fool has positions in and recommends Brookfield Renewable, Kenvue, Kinder Morgan, and Stag Industrial. The Motley Fool recommends Brookfield Renewable Partners and Johnson & Johnson. The Motley Fool has a disclosure policy.
