Making money usually requires a lot of effort. That’s not always the case, though. The idea behind passive income is that you barely have to lift a finger for the dollars to flow in.
There are plenty of ways to generate passive income. One of the best approaches is to buy stocks that pay attractive dividends. The main catch is that you’ll need money to invest upfront. But if you have enough cash, making money can be practically a piece of cake with the right stocks. Investing $123,500 in these three high-yield dividend stocks could make you $10,000 in reliable passive income in 2024.
1. Ares Capital
If you take one-third of an initial $123,500 and buy shares of Ares Capital(NASDAQ: ARCC), you should make a little over $4,000 in passive income next year. That’s because Ares Capital’s dividend yield stands at 9.73%.
I think you can safely bank on that dividend payout at least staying at the current level. Ares Capital is organized as a business development company (BDC). Regulations require that BDCs return a minimum of 90% of taxable income to shareholders in the form of dividends. Ares Capital’s core earnings should allow it to comfortably pay dividends at the current level or higher over the next year.
The company also has a good track record when it comes to dividends. Ares Capital’s dividend has been either stable or increasing for more than 14 years.
There is a risk that Ares Capital’s share price could decline so much that it offsets any dividend income you receive in 2024. However, investors might be comforted that the stock has delivered higher total returns than the S&P 500 over the last three-year and five-year periods as well as since Ares Capital’s IPO in 2004.
2. Enterprise Products Partners
You should be in a good position to make another $3,100 or so in passive income in 2024 by investing another one-third of the upfront money in Enterprise Products Partners(NYSE: EPD). The midstream energy leader’s distribution currently yields 7.55%.
There’s no need to worry about Enterprise Products Partners reducing its distribution. The company has increased its distribution for 25 consecutive years with a compound annual growth rate of around 7%. That’s an impressive streak that Enterprise’s management team will almost certainly do their best to extend.
The key to paying those attractive distributions regularly is to generate steady cash flow. Enterprise Products Partners’ history looks great on this front. During the financial crisis that precipitated the Great Recession, the company’s distributable cash flow increased. Even during the oil price collapse from 2014 to 2017 and the COVID-19 pandemic in 2020 and 2021, Enterprise’s distributable cash flow declined only moderately.
Enterprise Products Partners’ fortunes don’t hinge on oil and gas prices because of its business model built around pipelines and other midstream assets. However, it’s possible that the stock could sink if there’s an economic downturn next year. The good news for investors, though, is that the prospects for a solid economy in 2024 appear to be relatively bright with inflation moderating, manageable unemployment levels, and the potential for interest rate cuts by the Federal Reserve.
3. Verizon Communications
Verizon Communications(NYSE: VZ) is a great target for the final one-third of the initial $123,500 amount. Thanks to the telecommunications giant’s dividend yield of a little over 7%, you could make nearly $2,900 in additional passive income next year. This brings the total passive income produced by investing in Ares Capital, Enterprise Products Partners, and Verizon to roughly $10,000.
Admittedly, Verizon has faced some headwinds in recent years. Competition is intense in the wireless industry with the constant threat of customer churn. However, the company’s dividend hasn’t been in jeopardy. In September 2023, Verizon increased its dividend for the 17th consecutive year.
I think that Verizon’s dividend is more secure now than it’s been in a while. The company generated $14.6 billion of free cash flow in the first three quarters of 2023, up $2.2 billion from the same period in the prior year. Verizon also raised its free cash flow guidance for full-year 2023 to $18 billion.
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Keith Speights has positions in Ares Capital and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners and Verizon Communications. The Motley Fool has a disclosure policy.
Investing $123,500 in These 3 High-Yield Dividend Stocks Could Make You $10,000 in Reliable Passive Income in 2024 was originally published by The Motley Fool
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