Do you want to increase the flow of passive income you can expect each year? Managing rental properties is an option, but most retirees find this method less passive than they would like.
Investors who are attracted to truly passive income generation may want to consider this AT&T (NYSE:T), PenantPark Capital with variable interest (NYSE:PFLT)And Pfizer (NYSE:PFE). They offer an average yield of 7.6% at recent prices, so about $1,320 evenly divided between them is enough to give yourself an annual dividend income of $100.
Stocks generally don’t offer such high returns unless there are concerns about the underlying companies. Investors should not expect rapid increases in dividend payments from these stocks in the near term. That said, each of them seems capable of maintaining their payouts and increasing them significantly in the long run.
1. AT&T
AT&T cut its dividend in 2022 to offset the spinoff of its unpredictable media assets. The company hasn’t increased the payout since cutting it a few years ago, and at recent prices the telecom stock offers a 6.1% yield.
AT&T has racked up a lot of debt as it builds out its 5G infrastructure. At the end of March, the company’s net debt was 2.9 times the adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) it generated over the past twelve months.
Now that the heaviest investments in the 5G network have been completed, profitability is increasing. Free cash flow in the first quarter rose to $3.1 billion from just $1 billion in the year-ago period.
With cash flows increasing from new broadband and wireless Internet service subscriptions, AT&T expects net debt to fall to 2.5 times adjusted EBITDA in the first half of 2025. Management has not made any explicit promises, but the dividend will most likely kick in. rise again once the company reaches this debt service target.
2. PennantPark variable rate capital
PennantPark Capital with variable interest (NYSE:PFLT) is a business development company (BDC), which means it can avoid income taxes by paying out almost all of its profits as dividends to shareholders.
At recent prices, PennantPark Float Rate Capital offers a huge dividend yield of 10.7%. The BDC has only increased its payout by 7.9% over the past five years. However, with such high returns early on, investors who buy now could realize market gains if the payout can be maintained over the long term.
PennantPark and similar BDCs essentially act as lenders to mid-market companies that are too big for small business lending, but still too small to get a loan from traditional U.S. banks. This BDC’s customers are starved for capital and are willing to borrow at higher interest rates than you would expect for senior secured loans. Furthermore, as the name implies, almost all loans on the books receive interest at variable interest rates that have risen sharply in recent years.
The average return on debt investments in PennantPark’s debt portfolio was 12.3% at the end of March, and investors can be confident that borrowers can keep up with payments. Despite charging relatively high interest rates, only one portfolio company representing just 0.4% of its total portfolio was in non-accrual status at the end of March.
3. Pfizer
Pfizer shares have lost more than half their value since the stock peaked in late 2021. In short, sales of its COVID-19-related products collapsed much faster than the stock market expected.
Although Pfizer’s share price has fallen, the pharmaceutical company has steadily increased its dividend payout since 2009. At the low price, the share offers an eye-catching yield of 6.1% that could continue to rise for another fifteen years.
Now that the worst of the COVID-19-related sales declines are behind us, a slew of potential new blockbusters could steadily drive Pfizer’s profits and dividend higher.
Last year, Pfizer received approval from the Food and Drug Administration for nine new drugs, and the drugs it already markets are also becoming increasingly popular. In the first quarter alone, the company reported sales growth of 10% year-on-year or better for seven drugs in its product range.
Should You Invest $1,000 in AT&T Now?
Consider the following before buying stock in AT&T:
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Pfizer. The Motley Fool has a disclosure policy.
Want an extra $100 in annual dividend income? Invest $1,320 in these 3 high-yield stocks originally published by The Motley Fool
