Dividend stocks are a great way for investors to earn income from their investment portfolio.
Companies that consistently pay their fees tend to have good business models and strong fundamentals.
Companies that consistently raise their dividends outperform those that don’t and are less volatile.
10 stocks we like better than Real Estate Income ›
Investing in the stock market is a great way to build lasting wealth. It’s also a great way to make your money work for you by investing in dividend stocks. Stocks in these companies typically pay out a portion of their profits to shareholders on a quarterly basis.
In its study titled “The Power of Dividends: Past, Present and Future,” The Hartford Fund demonstrates the critical role dividends play in overall stock market returns. Since 1960, 95% S&P 500 IndexThe cumulative total return comes from compound interest and reinvested dividends.
Not only can you benefit from passive income from dividend stocks, but these companies are often among the best stocks to invest in. Companies that increased their dividend payments over time outperformed, with annual returns of 10.2% and lower volatility. Meanwhile, non-dividend-paying stocks returned a meager 4.3%.
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The reason for outperformance is that companies that consistently pay dividends tend to have sound business models, stable cash flow and prudent risk management. So if you’re looking for passive income, or just stocks to diversify your portfolio, and have $2,000 to put to work, here are three excellent dividend stocks to choose from today.
real estate income(NYSE: O) is a real estate investment trust (REIT) that owns and leases more than 15,000 commercial properties under long-term triple net leases.
With triple-net leasing, tenants bear most of the operating costs, including taxes, maintenance and insurance. As a result, the trust’s fees tend to be fixed and predictable, resulting in stable, highly predictable cash flows. In addition, lease terms typically range from 10 to 20 years and include built-in rent increases, providing reliable long-term cash flow.
One factor that makes Real Estate Income attractive to investors is that it pays dividends monthly, rather than quarterly like most dividend payers. For example, an investor would receive a dividend of approximately $0.27 on December 15, giving the investor an annual dividend yield of 5.6%.
Additionally, Real Estate Income has a long history of raising dividends. Realty Income has increased its monthly dividends 133x over the past three decades, making it a solid choice for those looking for reliable income.
BlackRock(NYSE:BLK) Plays a pivotal role in financial markets, offering a diverse range of investment options, including a wide range of exchange-traded funds (ETFs) through its iShares brand.
The company benefits from the growing trend in passive investing due to its low cost and diverse ETF selection. Today, it is the world’s largest asset manager, with more than $13.5 trillion in assets under management (AUM). Its ETFs also offer investments in a range of themes across industries, sectors and other factors, allowing clients to build portfolios that suit their risk profile. That’s why its iShares product accounts for about a third of the global ETF market.
Asset managers charge small fees for their ETFs and other products. Because its investment platform is so large, it generates a lot of recurring revenue for the company. Best of all, its business does not require extensive infrastructure or capital equipment, resulting in a capital-light model that can bring huge profits.
BlackRock has increased its dividend payments for 16 consecutive years, yielding about 1.8%. Meanwhile, the stock has returned more than 14.8% annually over the past decade, including reinvested dividends, making it a solid stock for investors looking for a combination of income and growth.
For investors seeking higher income and willing to take on more risk, Ares Capital (NASDAQ:ARCC) Offers a high dividend yield of over 9%. Its high earnings are due to its tax structure as a business development company (BDC). This is because BDCs are required to distribute 90% of their taxable income to shareholders, making them a pass-through entity.
Over the past few decades, business development companies have filled a lending gap for small, middle-market companies that are often overlooked by traditional banking. This is because strict capital and risk requirements have led banks to shift their focus to larger companies, whose debt is more liquid and less risky.
Lending to middle-market companies carries risks, including the possibility of default in a weak economy. The recent collapses of First Brands and Tricolor, two large borrowers in the private credit ecosystem, have put BDCs such as Ares Capital under scrutiny and put pressure on their share prices.
That said, Ares has more than 20 years of experience lending to these companies and has delivered solid results, including during the Great Recession. For investors willing to accept some risk, Ares Capital is an attractive high-yield dividend stock to buy right now.
Before buying real estate income stocks, consider the following factors:
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Courtney Carlson has no position in any of the stocks mentioned. The Motley Fool owns and recommends Ares Capital and Realty Income. “Motley Fool” recommends BlackRock. The Motley Fool has a disclosure policy.
The Best Dividend Stocks to Buy Now with $2,000 was originally published by The Motley Fool
