I love to buy dividend-paying stocks to generate passive income. My favorites are companies that pay high dividend yields that they’ve been able to grow steadily over time. That provides me with more income, putting me closer to my goal of financial independence, where my passive income covers my expenses.
I still have a long way to go before I reach that goal, so I continue to buy dividend stocks when I have money to spare. Three ultra-high-yielders that I’ve been buying hand-over-fist this year are Blackstone (BX 5.07%), Medical Properties Trust (MPW 3.89%), and Verizon (VZ -0.57%).
An attractive payout
I added private equity behemoth Blackstone to my portfolio earlier this summer. I have already added to that position three times because the share price has continued to fall. That sell-off has driven up its dividend yield to 5.5%, which is several times more than the 1.7% dividend yield of the S&P 500.
One thing that stands out about Blackstone’s dividend is that it does vary from quarter to quarter. The alternative asset manager distributes nearly all its earnings to investors via dividends and share repurchases. While it generates steadily growing fee-related earnings by managing assets on behalf of clients, its performance revenues ebb and flow each quarter, impacting dividend payments.
However, Blackstone’s earnings and dividends tend to grow over time. A big driver is the continued shift in investor capital from public stock and bond markets to alternative investments like hedge funds, private equity, real estate, and infrastructure. Allocations to alternatives should keep rising in the future, positioning Blackstone to generate growing fee-related income and performance revenues. That should allow it to continue paying sizable dividends.
A healthy payout
Medical Properties Trust is one of my favorite dividend stocks. I’ve owned shares of the hospital-focused healthcare REIT for more than a decade. I usually add to my position once a year.
However, this year, I’ve already bought shares three times and wrote a put option to potentially purchase even more. I’ve been taking advantage of the sell-off in the REIT’s stock price. Shares have tumbled more than 40% because of the selloff in the stock market. That has driven its dividend yield up more than 10%.
While a double-digit dividend yield is usually a warning sign, that’s not the case with this REIT. It reported its third-quarter results last month, which showed that it’s very healthy. Its funds from operations (FFO) continue to grow, — FFO per share rose 6% in the third quarter and is up 7% year to date — driven by rising rental rates and recent acquisitions. Meanwhile, it has a healthy balance sheet with a reasonable leverage ratio and primarily long-term, fixed-rate debt. It also has lots of liquidity after selling several assets. While it has slowed its acquisition pace due to market turbulence this year, it has the flexibility to make deals as opportunities arise.
Medical Properties Trust also has an excellent track record of growing its dividend. The REIT has increased its payout for eight straight years. With FFO rising in 2022 and inflation-linked rental rate escalators giving it another boost in 2023, Medical Properties Trust should be able to continue growing its big-time dividend even if it’s not making as many deals.
The cash to continue growing
I’ve owned shares of telecom giant Verizon for many years. However, I’ve added to my position a couple of times already this year because the stock price has tumbled 25%, pushing its yield up to 6.8%.
That high-yielding payout is on rock-solid ground. The company has generated $28.2 billion of cash from operations so far this year. This cash flow has covered its $15.8 billion capital expense outlay and $8.1 billion of dividend payments with room to spare. That has allowed Verizon to invest in its growth while maintaining a strong balance sheet.
Verizon also has an excellent track record of growing its big-time dividend. The telecom giant delivered its 16th consecutive annual increase earlier this year, the longest current active streak in the U.S. telecom sector. With its investments positioning it to grow its free cash flow in the future, Verizon should have the funds to continue increasing its dividend.
Buying more income
With dividends rising as the stock market has tumbled this year, I’ve been buying shares of dividend-paying stocks like Blackstone, Medical Properties Trust, and Verizon hand over fist to boost my passive income. While the big driver is the big income boost they’ll provide in the near term because of their sizable yields, all three have a history of paying a growing dividend. That means I should generate even more passive income from these purchases in the future.
Matthew DiLallo has positions in Blackstone, Medical Properties Trust, and Verizon Communications and has the following options: short November 2022 $10 puts on Medical Properties Trust. The Motley Fool has positions in and recommends Blackstone. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.