Earn while you sleep? Sounds like a good deal. The trick, of course, is that you need to spend some money buying dividend-paying stocks to benefit from the passive income they consistently generate. The side benefit is that dividend-paying companies can be an excellent source of returns, in addition to providing stability to your portfolio.
Three dividend stocks to consider are Black Stone (BX -2.10%), Artisan Partners Asset Management (APM -1.52%)E Federal Real Estate Investment Fund (FRT -1.54%). With an average return of 4.94% among the three at the moment, an investment of $ 10,121 divided equally among these three could yield $ 500 per year (before taxes). Let's take a look at these three dividend stocks.
1. Blackstone benefits from the growing popularity of alternative investments
Blackstone provides investments to its clients, including pension funds, institutional investors, and wealthy individuals.
It doesn't pay a fixed quarterly dividend. Instead, it pays out 100% of its earnings distributed through dividends and share buybacks. Therefore, the dividend can vary each year depending on its performance. However, if you look at the last decade, its dividend payout has grown by an astonishing 20% per year.
The secret to Blackstone's success is its "alternative investment" offerings. Alternative investments are outside of your typical investments, such as stocks, bonds, and cash. The alternative investment space has grown rapidly. According to Preqin data, total assets under management (AUM) across all alternative asset classes grew 10.7% annually from 2015 to 2021. Don't expect growth to slow down any time soon. In fact, Preqin expects alternative investment growth to accelerate to 11.7% annually by 2026.
For Blackstone, this is an excellent opportunity to further expand its reach. A growing trend is for retail investors to shift to alternative investments. Blackstone created its BREIT product to provide wealthy individuals with access to private investments for precisely this reason.
While the company has been in the news recently for limiting refunds, its long-term growth story remains solid. It has excellent growth potential and $1.87 billion in “dry powder,” or cash, that can be deployed through its various investments. With its $3.86 billion dividend yield and excellent growth prospects, Blackstone is a solid passive income stock to consider.
2. Artisan Partners is committed to returning the majority of its revenue to shareholders.
Artisan Partners is a boutique asset manager. It's very small compared to mega-asset managers like Vanguard and Black StoneThe firm has about US$127 billion in assets under management (AUM), while Vanguard and BlackRock have more than US$8 trillion each.
Artisan Partners uses its small size to capitalize on strategies that larger players cannot. Its asset managers have the agility and flexibility to pursue niche strategies that outperform the markets.
While the total size of its AUM decreased by 27% compared to last year, most of this was due to falling asset prices. Net outflows accounted for 5% of this change; however, clients generally stay with Artisan Partners.
Looking ahead, its results are impressive: 24 of the 25 Artisan funds have outperformed their benchmark since inception. Artisan Partners pays a hefty dividend yield of 6.68%. This outsized payout is possible because management is committed to returning approximately 80% of its quarterly income to shareholders through dividends.
APAM Dividends Paid (TTM) Y-Chart Data
It's important to note that Artisan Partners' dividends fluctuate (sometimes dramatically) from year to year. For example, over the past three years, it has paid dividends of $3.67, $4.23, and $2.78 per share. Despite this, Artisan Partners is a solid stock with a high dividend yield. If you don't mind some volatility, it could be another excellent income stock as part of your diversified portfolio.
3. Federal Realty Investment Trust has a secret recipe for weathering tough times and increasing its dividends.
The Federal Realty Investment Trust has increased its dividend every year for 55 consecutive years. It operates as a real estate investment trust (REIT) and is required to pay shareholders 90% of its taxable income in the form of dividends.
Federal Realty acquires and develops retail and other mixed-use properties. Its secret sauce is that it is highly selective about where it invests its money. The REIT invests in the Ring One suburbs, which are communities near inner cities in metropolitan markets.
It chooses markets with high barriers to entry, high median household incomes, and dense populations. By focusing on these three characteristics, Federal Realty's business is more resilient than others in the field. This is because higher incomes can absorb the effects of inflation and weather economic downturns better than others. Its portfolio is spread across numerous tenants, including TJ Maxx, Home storage, cvs extensionAND Kroger.
FRT (TTM) Dividend Paid Data from Y Charts
With its ever-increasing payout and 4.28% dividend yield, Federal Realty is another solid dividend stock you can buy today.
Before you buy these stocks, consider this
While these companies have excellent dividends, these payments can decline in a bad year. Therefore, your top priority as an investor should be spreading risk and diversifying your holdings.
These three stocks could be great additions to your current holdings. So, if you're looking to generate passive income, have $10,121 to invest, and this change doesn't eliminate diversification in your portfolio, these three dividend stocks are excellent companies to buy today.
Courtney Carlsen holds no position in any of the stocks mentioned. The Motley Fool has locations and recommends Blackstone and Home Depot. The Motley Fool recommends CVS Health and TJX Companies. The Motley Fool has a disclosure policy.
