Dividend stocks can be excellent sources of recurring income. But you'll inevitably need money to make a decent amount from dividends. If you can afford to invest $70,000, then you could earn more than $5,000 in dividends over the course of a year by buying three stocks: LTC Properties(LTC -0.58%),AT&T(T -0.57%), andEnbridge(ENB -0.97%).
1. LTC Properties
LTC Properties is a real estate investment trust (REIT) that focuses on healthcare. It has 218 properties in its portfolio, with more than 60% devoted to assisted living facilities and 35% to skilled nursing. It has a presence across most of the country, making it a fairly diverse business to invest in.
For REIT investors, the key number to watch for is funds from operations (FFO). This is essentially net income for REITs and helps to gauge the strength of their financials.
In its most recent quarter (ended June 30), LTC reported an FFO of $0.66 per share, up from $0.64 during the same period last year. That's also more than the $0.57 the company paid in dividends during the quarter. Although that may seem like it's not a huge buffer, REITs have to pay out 90% of their profits back to investors, so a high payout isn't uncommon. The key is if it's sustainable. And based on LTC's results and industry, the dividend appears to be manageable.
Investors have been turning away from REITs amid rising interest rates, and as a result, LTC's stock is down more than 10% this year. But this can still make for an excellent dividend stock to own, given that its payout is safe.
Investing $20,000 into LTC could generate approximately $1,440 in annual dividends for your portfolio. And with the REIT making payments every month, you'll also benefit from a nice stream of consistent cash flow.
2. AT&T
You can earn a slightly higher yield from AT&T. Investing in the telecom stock would allow you to earn 7.3%. The stock's yield is high as shares of AT&T have been sliding, down 18% this year.
A big part of that is its exposure to lead-covered cables, which investors fear could saddle the business with some costly expenditures. However, even if that does happen, it's something that could take years, and AT&T likely won't have to make a massive payment right away. Investors are probably overreacting to these developments.
More importantly, AT&T's business looks to be on a more encouraging path. With the company no longer worrying about a streaming service and back to focusing just on telecom, the dividend isn't as risky as it may have been a few years ago. For current and prospective AT&T investors, the key number to consider is free cash flow. While earnings may fluctuate due to nonoperating items, free cash flow can give a good indication of the company's ability to pay cash dividends.
And through the first half of the year, cash from operating activities has totaled $9.9 billion, which is a 28% increase from the same period last year. The company also believes it is on track to hit its target of $16 billion in free cash flow for the full year. AT&T pays out over $8 billion in dividends on an annual basis, so that amount of free cash will definitely make the payout sustainable.
If you invest $25,000 into the stock today, you could collect around $1,825 in annual dividends.
3. Enbridge
As high as the past two yields were, the highest on this list comes from energy giant Enbridge. Yielding 7.6%, this payout is nearly five times the S&P 500's average yield of 1.6%.Another $25,000 invested into this stock could result in an annual dividend of $1,900, putting your total dividend income at approximately $5,165 across these three investments.
Enbridge recently made headlines announcing that it plans to acquire three natural gas companies from Dominion Energyfor $14 billion. Shares of Enbridge have since declined around 12% year to date, which isn't unusual for the acquiring business in these types of situations. But Enbridge is optimistic about what these acquisitions mean for its business in the long run. Because they will diversify the pipeline company's operations, they will give the Canadian-based business a stronger presence in the U.S. natural gas market.
The company says the transactions will create "North America's largest natural gas utility platform" that reaches 7 million customers. What's more, these acquisitions should actually make the dividend safer. Enbridge anticipates that the deals will be accretive to its distributable cash flow in the first full year. And the company says that will strengthen its prospects for long-term dividend growth.
Enbridge has increased its dividend for the past 28 years, averaging a compound annual growth rate of 10% during that stretch. If the deal with Dominion improves an already strong dividend growth stock's prospects, that's a huge win for long-term investors. Enbridge could be one of the better dividend stocks to own right now.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Enbridge. The Motley Fool recommends Dominion Energy. The Motley Fool has a disclosure policy.
