Aim to collect $300 in secure dividend income by 2025? Allocate $3,730 to the following three top-tier dividend-yielding stocks.
Wall Street offers numerous methods to accumulate wealth, boasting numerous publicly traded companies and exchange-traded funds (ETFs). These abundant options increase the likelihood of finding investments that help attain your financial objectives. However, among the various routes to financial growth on Wall Street, few have yielded consistent success over extensive periods like purchasing and holding high-quality dividend stocks.
Companies providing regular dividends tend to conduct profitable businesses on a consistent basis and have typically demonstrated resilience during economic downturns. Moreover, these dividend-paying stocks often offer lucid long-term growth perspectives.
What truly appeals to investors is that dividend stocks have historically outperformed non-payers substantially. Analytical reports comparing the performance of dividend stocks to non-payers over a 50-year period (1973-2023) revealed that dividend stocks surpassed the average annual return of non-payers (9.17% versus 4.27%) while displaying lower volatility than the diverse S&P 500.
The challenge for income enthusiasts is striking a balance between yield and risk. Studies have suggested that as yield increases, so does investment risk. Since yield is proportional to payout relative to share price, a company confronting difficulties with its business model and declining share price can easily attract income seekers to an appealing yield trap.
Fortunately, not all high-yield dividend stocks obligate investors to encounter trouble. With thorough scrutiny, attractive opportunities and substantial, sustainable payouts can be discovered.
To generate $300 in secure dividend income in 2025, invest $3,730 (split equally three ways) in the following three high-yield stocks exhibiting an average yield of 8.05%!
Realty Income: 6.02% yield
The primary income stock delivering for dividend investors in a significant manner in 2025 (and beyond) is Wall Street's premier retail real estate investment trust (REIT) -- and monthly dividend payer -- Realty Income (O -0.77%). Realty Income's distributions have risen uninterruptedly for 109 consecutive quarters, which represents a span lasting over 27 years.
Realty Income's commercial real estate (CRE) portfolio surpasses other retail REITs. As of September, it possesses 15,457 CRE properties, with 90% considered "resilient to economic downturns and/or shielded from e-commerce pressures."
Realty Income's FFO is remarkably predictable due to its predominant leasing to stand-alone businesses in consumer staple industries. This includes grocery stores, convenience stores, dollar stores, drug stores, and automotive service locations. These renters pay their bills on time and frequently renew their leases, irrespective of the U.S. economy's condition.
Since the turn of the century, Realty Income's occupancy rate has outperformed other S&P 500 REITs. It boasts a median occupancy rate of 98.2% over 24 years, a full 4 percentage points higher than the 94.2% median occupancy rate for S&P 500 REITs over the same duration. As a result, consistent FFO is crucial for maintaining its robust payout.
Additionally, Realty Income has expanded beyond its retail core. It has sealed two deals in the gaming industry over the past two years and finalized the acquisition of Spirit Realty Capital in January 2024 to broaden its existing CRE portfolio and explore new verticals.
The cherry on top is that Realty Income's multiple to forecasted cash flow in 2025 represents a 29% discount to its average price-to-cash-flow ratio over the trailing-five-year period. In short, it remains a bargain.
Enterprise Products Partners: 6.76% yield
A second high-yield stock capable of helping investors bring home $300 in secure dividend income in the new year with a starting investment of $3,730 (split into thirds) is energy companyEnterprise Products Partners (EPD -0.23%). Enterprise has boosted its base annual distribution every year for the past 26 years, implying its near-7% yield is remarkably secure.
The allure of Enterprise Products Partners' business model lies in its role as the essential intermediary in the energy complex. Unlike upstream drilling companies, susceptible to the unpredictable spot price fluctuations of crude oil and natural gas, this vulnerability rarely impacts Enterprise and its 50,000 miles of transmission pipelines and an excess of 300 million barrels of liquids storage capacity.
Like Realty Income, Enterprise is engineered for cash flow consistency. The majority of its contracts with upstream drillers are long-term, incorporate built-in escalations to combat inflation, and feature fixed rates. This fixed-rate feature allows for accurate cash flow forecasting, empowering the company's board and management team to pay a substantial distribution and invest for the future.
Enterprise has committed close to $7 billion to major capital projects, has a significant portion of these projects due to go live inside 2026, and anticipates lower forecasted capital expenditures in 2026. These investments, combined with reduced capital expenditures, should result in a sizeable increase in cash flow from operations.
Neglecting the significance of non-organic growth is also not advisable. The financial transparency of the company's majorly fixed-rate agreements allows for occasional supplementary acquisitions, which are often immediately profitable for the company's financial standing. An instance of this is the company's recent $950 million cash purchase of Pinon Midstream, predicted to boost the company's distributable cash flow by $0.03 per unit in 2025.
Enterprise Products Partners could potentially be recognized as the most secure ultra-high-yield stock in the energy sector.
PennantPark Senior Floating Rate Corporation: 11.36% yield
The third high-octane income stock capable of generating $300 in dividend income in 2025 from an initial investment of $3,730 (split into thirds) is business development company (BDC) PennantPark Senior Floating Rate Corporation (PFLS 0.28%). PennantPark is also a monthly dividend payer and currently has a tantalizing yield of 11.4%.
BDCs invest in the debt or equity (common and preferred stock) of middle-market businesses, meaning smaller companies still establishing their reputations. As of September 30, approximately $1.75 billion of PennantPark's $1.98 billion portfolio was invested in loans, making it a predominantly debt-focused BDC.
The primary benefit of focusing on debt for BDCs is evident in the company's yield. As smaller businesses often lack access to basic financing services, the loans PennantPark arranges usually have above-average yields. By September 30, the company's portfolio was generating a weighted average yield on debt investments of 11.5%!
What sets PennantPark Senior Floating Rate Corporation apart is in its name. Every single loan in its portfolio has a variable rate. The Fed's aggressive interest rate hike from March 2022 to July 2023 escalated PennantPark's weighted average yield on debt investments from 7.4%, as of September 30, 2021, to as high as 12.6%. Even with the nation's central bank now implementing an interest rate decrease, the sluggish pace of decrease will allow PennantPark ample opportunity to lend at higher interest rates.
No discussion of PennantPark Senior Floating Rate Corporation can be overlooked without mentioning the excellent job management has done in managing risk to the company's principle. Including equity investments, the company's average investment size of $12.6 million ensures that no individual loan or equity position can disrupt the boat.
Furthermore, almost all but $2.7 million of the roughly $1.75 billion loan portfolio is in first-lien secured notes. In the unlikely event that a borrower seeks bankruptcy protection, first-lien secured debtholders are prioritized for repayment.
Despite being smaller compared to Realty Income and Enterprise Products Partners, PennantPark Senior Floating Rate Corporation's operating model delivers a powerful punch and a steady (sustainable) dividend.
Investors interested in collecting dividends from reliable sources might find high-yield stocks like Realty Income appealing. With a yield of 6.02%, Realty Income's monthly dividend payouts have been consistent for over 27 years, demonstrating its strong financial performance and resilience during economic downturns.
Another high-yield option is Enterprise Products Partners, an energy company with a near-7% yield. Its business model, centered around the essential intermediary role in the energy complex, provides a stable income source and has seen annual distribution increases for the past 26 years.
