The past few years have been great for most stocks. With the benchmark S&P 500 index up about 53% since the end of 2022, finding blue-chip stocks trading at reasonable valuations can be difficult.
For those interested in earning passive income from investing, finding stocks to buy can be even more difficult. At recent prices, the average dividend-paying stock in the S&P 500 index yields an unimpressive 1.3%.
Finding quality stocks with high dividend yields is harder now than it was a few years ago, but it’s not impossible. AT&T (NYSE: T), Pennant Park Floating Rate Capital (NYSE: PFLT), and WP Carey (NYSE: WPC) stocks offer yields of over 5% at the moment.
With an average yield of 7.1% at recent prices, an investment of about $1,450 spread evenly across these three stocks is enough to pay out more than $100 in annual dividends. Even better, there’s a good chance these dividend payers will be able to increase their dividends further in the coming years.
AT&T
In September, AT&T agreed to sell its remaining stake in DirecTV to a private equity firm for a total cash payment worth $7.6 billion. Now that it’s a pure communications business, investors can expect predictable cash flow to support its quarterly dividend.
AT&T froze its dividend after lowering it in 2022 in preparation for the sale of media assets. At recent prices, the stock has a yield of 5.1%, so there’s a good chance the company will start raising its dividend again soon.
While traditional wireline phone and broadband services are a thing of the past, these losses will be more than offset by the services enabled by the 5G and fiber optic infrastructure that AT&T has invested in. Mobile services revenue increased 3.4% year-over-year to $16.3 in the second quarter. This represents approximately 55% of total revenue.
Consumer broadband sales rose 7% year over year to $2.7 billion in the second quarter. This is the 18th consecutive quarter that AT&T Fiber has added more than 200,000 subscribers. With broadband and mobile internet trends heading in the right direction, a return to annual dividend increases seems likely in 2025. As one of only three U.S. telecommunications companies with a nationwide 5G network, investors can also expect stable returns over the long term.
Pennant Park Floating Rate Capital
PennantPark Floating Rate Capital is a business development company (BDC) that provides financing to mid-market businesses with annual revenues of $10 million to $50 million. As the name suggests, nearly all loans it originates earn interest at variable rates.
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At recent prices, PennantPark offers an amazing 10.45% yield and monthly payments. With a brief exception in 2018, these payments have continued to increase or remain stable since BDCs debuted on the stock market in 2011.
Despite the rise in variable interest rates over the past few years, very few loans originated by Pennant Park have failed. Of the 151 portfolio companies, three companies representing 1.5% of portfolio cost were in accrual status at the end of June.
For decades, U.S. banks have avoided direct lending, giving Pennant Park plenty of opportunities to expand its portfolio. In the three months to June 30, the portfolio grew 31% to $1.7 billion. With many capital-hungry mid-sized companies to choose from, the best days of this BDC are still ahead of us.
WP Carry
WP Carey is a real estate investment trust (REIT) that once owned many office buildings. Last year, the company spun out its office buildings into a new REIT called Net Lease Office Properties and lowered its dividend payout accordingly.
It didn’t take long for WP Carey’s dividends to start increasing again. The REIT already raised its dividend by 1.7% in September, and at recent prices the stock yields 5.9%.
Even after exiting its office portfolio, WP Carey still leases 1,291 buildings to 346 different tenants. The company is so diversified that its largest tenant, a generic drug maker named Apotex, pays just 2.5% of the REIT’s expected annual total rent.
Some REITs manage buildings within their real estate portfolios, but WP Carey does not. This REIT uses a net lease method in which all variable costs associated with owning a building, such as maintenance costs and taxes, are passed on to tenants.
With an annual rent escalator built into the long-term lease, shareholders can reasonably expect cash flow from this REIT to steadily increase over the next few years.
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Cory Renauer has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
Want to earn $100 a year in dividend income? Invest $1,450 in these three high-yield stocks. Originally published by The Motley Fool
