Creating passive income has never been more crucial for investors who aim for financial independence. With the unpredictable nature of retirement benefits and ongoing worries about inflation, it’s essential to establish dependable income sources that don’t solely rely on traditional employment.
Dividend-paying stocks stand out as a top choice for generating passive income. These stocks can offer both steady cash flow and potential for price increases, making them a great asset for long-term wealth creation without demanding active oversight from investors.
Let’s dive into three outstanding dividend options that can serve as a cornerstone for building a solid passive income portfolio. Each offers unique payment schedules and growth prospects.
The Monthly Dividend Powerhouse
Realty Income, known as the real estate investment trust (REIT) (O 0.40%), has rightfully earned its title of "The Monthly Dividend Company" through its remarkable history of wealth generation. With nearly 30 years of annual dividend hikes, this real estate giant boasts an empire of 15,450 properties across eight countries, providing a diversified income stream supported by top-tier commercial real estate.
The latest financial results illustrate the REIT’s strength. In the third quarter of 2024, it generated an impressive $915.6 million in adjusted funds from operations (AFFO). Moreover, the management raised its 2024 AFFO-per-share guidance, highlighting strong business performance and favorable market trends.
Specifically, the REIT now anticipates a 4.8% increase in AFFO per share for the year, capitalizing on its solid growth track through strategic property acquisitions and sustained high occupancy rates.
In short, Realty Income’s attractive 6% dividend yield, coupled with its 29-year streak of dividend hikes, offers a unique blend of dependable income and reliability that would entice any passive income investor.
The Dividend Growth Champion
Costco Wholesale (COST -0.44%) has perfected the strategy of boosting shareholder value through dividend growth. Although its modest 0.47% yield might not catch the eye of traditional income seekers, Costco’s dividend approach is truly exceptional. Noteworthy is Costco’s incredible 12.3% annual dividend growth over the last five years, placing it among the top dividend growth contenders in the large-cap sector.
This impressive dividend growth is backed by a robust business model. The first-quarter fiscal 2025 data reveals this strength, with net sales jumping 7.5% to a substantial $61 billion over three months.
When viewed through the lens of an income investor, Costco’s membership-driven model offers a significant edge. With U.S. and Canadian renewal rates surpassing 92%, the company enjoys highly predictable revenue streams. This subscription-like arrangement, along with unmatched operational efficiency, drives consistent dividend raises that outperform most competitors.
For those aiming to develop meaningful passive income over time, Costco sets the benchmark in dividend growth investing. The company’s steadfast capability to deliver double-digit payout increases—bolstered by growing sales, rising memberships, and excellent operations—makes it a compelling choice for those seeking long-term wealth via rising dividends.
Innovation Meets Income
The JPMorgan Equity Premium Income ETF (JEPI 0.33%) presents a sophisticated take on traditional income investing. By marrying equity holdings with options strategies, this cutting-edge exchange-traded fund (ETF) delivers a remarkable 6.98% yield while maintaining links to some of America’s leading companies. Its portfolio includes significant players across diverse sectors, featuring prominent tech companies, financial institutions, and industrial leaders.
The fund’s strategy marries two unique income sources to boost yield potential. Its principal equity holdings generate standard dividend income, while its options-overlay method brings in extra income through premium collections. Throughout 2024, this twin strategy has yielded consistent monthly payouts even as the fund’s net asset value rose by 5.26%, proving the strategy’s capacity to balance income generation with capital stability.
Many retirees and income-centric investors struggle to balance high yields with quality investments. The JPMorgan Equity Premium Income ETF tackles this issue by generating substantial monthly income using its covered-call strategy on blue-chip stocks. This approach lets investors enjoy significant yields while staying exposed to potential market upsides, offering a smart solution for those seeking reliable passive income without forgoing investment quality.
The Power of Passive Income Diversity
These three dividend investments exemplify diverse approaches for building passive income. Realty Income offers stable monthly payouts backed by real estate, Costco Wholesale presents excellent dividend growth potential, and the JPMorgan Equity Premium Income ETF creates enhanced monthly yields through options strategies.
Together, they highlight how different dividend strategies can forge a strong passive income stream while maintaining growth potential for long-term investors.
