One of the easiest ways to earn passive income is by investing in shares of dividend-paying companies. Numerous firms have a history of consistently sharing profits with their shareholders, as well as increasing payouts - sometimes, for decades. This makes these companies an attractive option for those seeking solid dividend income.
However, investors should choose carefully when it comes to dividend stocks. Since dividends are paid out of profits, it's generally best to invest in companies with a growing earnings base and a reliable history of dividend distributions, rather than focusing solely on stocks with the highest yield.
Based on these parameters, Enterprise Products Partners (EPD), Altria Group (MO), and Energy Transfer (ET) stocks stand out as notable choices for investors seeking steady income and a high yield. These companies have been consistently paying and growing their dividends for years.
Here's a closer look at all three stocks, plus how many shares of each an investor would need to buy to earn $1,000 in dividend income per year.
Enterprise Products
Enterprise Products Partners offers midstream energy services, encompassing the gathering, storage, and transportation of hydrocarbons. Its integrated energy asset network and fee-based contracts enable it to grow earnings in all market conditions.
Thanks to its growing earnings base, EPD has increased its dividends for 25 consecutive years at a CAGR of 7.6%. Further, since listing on the stock market, it has returned $50.8 billion to its shareholders through dividends and share buybacks.
Looking ahead, EPD's $6.8 billion in capital projects are anticipated to be operational in the medium term, fueling its organic growth. Consequently, this should bolster its earnings and support increased dividend payouts - currently at $0.50 a quarter, or $2.00 annually.
Twelve out of 14 analysts have rated EPD a “Strong Buy.” Meanwhile, two analysts recommend “Hold.” The consensus 12-month target price of $31.50 is about 20% higher than its current trading price.
Altria Group
Altria Group owns a leading portfolio of tobacco products. Moreover, the company focuses on developing products to compete in the international innovative smoke-free and non-nicotine categories. What stands out is Altria’s stellar dividend payment and growth history, which reflects the strength of its business model that consistently generates strong earnings.
Altria recently increased its quarterly dividend by 4.3% to $0.98 per share. This translates into a high yield of over 9%. Further, the company has increased its dividend 58 times in the last 54 years. This makes Altria a dependable, high-yield stock to earn steady dividend income.
The company expects to grow its EPS by mid-single digits annually through 2028. At the same time, it projects to increase its dividend by mid-single-digits. Moreover, the company focuses on reducing its debt and targets a debt-to-consolidated EBITDA ratio of approximately 2.
Altria is expected to benefit from its leading position in the U.S. tobacco space. In addition, it expects to double its U.S. smoke-free net revenues to $5 billion by 2028.
Out of the nine analysts covering MO, three have a “Strong Buy” recommendation, five recommend a “Hold,” and one analyst suggests a “Strong Sell.” The average price target for Altria stock is $46.02, which implies 14% upside potential from current levels.
Energy Transfer
Energy Transfer operates an energy infrastructure business specializing in the transportation of natural gas (NGZ23), NGLs (natural gas liquids), and crude oil (CLZ23). Further, with assets located in every major production basin in the U.S., the company is one of the leading NGL exporters in the world.
Energy Transfer’s well-diversified and extensive asset base, along with its fee-based earnings, position the company well to steadily grow its earnings, regardless of commodity cycles. Further, this enables the firm to bolster its shareholders’ returns through increased dividend payouts.
In particular, it’s worth noting that about 90% of Energy Transfer’s adjusted EBITDA is derived from fee-based contracts. This adds stability to its earnings and payouts. While the company has consistently increased its dividend - currently at $0.31 per quarter - it targets a 3-5% increase in its annual distribution in the coming years. Also, it offers a lucrative yield of about 9.36%.
Overall, Energy Transfer is poised to benefit from its diversified asset base, fee-based earnings, and strategic acquisitions.
Currently, 10 out of 12 analysts covering ET rate it a “Strong Buy.” One analyst recommends a “Moderate Buy,” and one has a “Hold.” The average price target of $16.69 implies about 25% upside potential from current levels.
Bottom Line
These corporations are unquestionably solid choices for generating consistent dividend income. Presently, on average, these stocks provide a yield of approximately 8.8%. This implies that by evenly investing $11,500 in these three stocks, investors could earn over $1,000 ($1,012, to be precise) annually.
Here's how the math works out, stock by stock:
- At current levels, it would take 500 shares of EPD on its own to yield $1,000 in dividend income annually, for an investment of more than $13,000.
- An investor would need more than 800 shares of ET to generate $1,000 in dividends annually, which would cost about $10,692 at current prices.
- Just over 250 shares of MO will bring in $1,000 in dividends annually, which is worth about $10,286 based on the current share price.
Alternately, for a more balanced approach, allocating about $11,300 to 100 shares of EPD, 150 shares of MO, and 200 shares of ET at current levels would yield over $1,000 in annual dividend payments.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
