Making passive income is one of the keys to becoming financially independent. Once your income from passive activities exceeds your expenses, you no longer need to work actively to earn money.
One way to accelerate your financial independence is to invest in dividend stocks with an above-average dividend that can grow steadily in the years to come. Three high-quality dividend stocks that offer a large payout that should increase in the future are Energy transfer (AND 3.05%), Medical Properties Trust (MPW -3.53%)and Verizon (VZ -1.58%).
A high-octane cash distribution
Energy transfer has a monster payout. The Master LP (MLP) is currently paying a 7.8% cash distribution. That’s multiples above the 1.6% dividend yield on a S&P500 index fund.
Usually such a high yield is a warning sign. However, this is not the case with energy transfer. MLP generates mountains of recurring cash flow backed by long-term contracts and government-regulated tariffs. It produced $1.17 billion in cash after paying its high yield distribution in the second quarter. That was enough money to fund all of its $825 million in growth capital spending with headroom, allowing the company to make another small acquisition and continue to pay down debt.
Energy Transfer has big plans for its distribution. The energy company wants to bring it back to its former high of $0.305 per unit every quarter. This is more than 30% above the current rate. Energy Transfer has already increased its payout by 50% this year as it steadily rises to that level. Meanwhile, his payout could one day surpass his former high as the company’s expansion plans continue to boost his cash flow.
A healthy income stream
The Medical Properties Trust dividend is currently yielding 7.4%. This is well above the average for real estate investment trusts (REITs), which is about 3.5%.
This high-yield payout also rests on a solid foundation. The hospital-focused REIT generates stable rental income supported by long-term leases with healthcare systems. Meanwhile, the company pays a good percentage of its revenue (less than 80% of its adjusted operating funds) to support its high-yielding dividend. This allows it to retain cash to fund its expanding hospital portfolio.
The REIT combines its retained cash with the flexibility of its balance sheet and other sources of capital (equity sales, asset sales and joint ventures) to acquire additional income-generating hospital real estate. It made several new investments in the second quarter, including an expansion in Spain. The company’s regular transactions have enabled it to increase its dividend for the past 9 consecutive years. He should be able to continue this streak in the future.
Continue to serve our customers and shareholders
Verizon currently pays a 5.8% dividend. The telecommunications giant is generating a lot of money to support its large payout. Its cash flow from operations was $17.7 billion in the first half of 2022. The company has invested $10.5 billion in capital to expand its operations, including deploying infrastructure to upgrade level its network in order to 5G. Even with this heavy investment, Verizon generated $7.2 billion in free cash, which it used to pay out $5.4 billion in dividends and bolster its strong balance sheet.
In contrast, due to competitive pressures, Verizon’s 2022 numbers were down slightly from the prior year period. However, the company believes that its investments will generate profitable growth over the long term. It is investing heavily in 5G, which should support a faster network in the future, improving its ability to retain and grow its customer base.
This should allow the telecommunications company to continue to increase its dividend. Verizon achieved its 15th consecutive annual dividend increase late last year and has the free cash flow, financial flexibility and growth prospects to continue to increase its payout in the future.
Big revenue generators
Energy Transfer, Medical Properties Trust and Verizon all pay high yield dividends backed by strong financial profiles. This means they have the financial flexibility to continue to grow their operations, which should allow them to continue to increase their payouts in the future. This combination of a strong income stream now with even more later can help accelerate financial independence.
Matthew DiLallo has positions in Energy Transfer LP, Medical Properties Trust and Verizon Communications and has the following options: $8 October 2022 short put options on Energy Transfer LP. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.