You don't have to be rich to begin generating passive income. Now that nearly all online stock brokers have eliminated deposit requirements and minimum fees to enact common stock trades, almost anyone can afford to put some money to work.
Right now, $100 is more than enough to buy shares of AT&T (NYSE: T), and Royalty Pharma (NASDAQ: RPRX). If you have cash ready to invest that you won't need to pay bills or cover unforeseen emergencies, buying shares of these stocks and holding on for the long run is a nearly surefire way to secure a growing stream of passive income.
1. AT&T
One of the first no-brainer dividend stocks to buy with $100 right now is AT&T. At recent prices, America's second-largest telecommunications business by revenue offers a juicy 5.1% dividend yield.
AT&T lowered its dividend payout in 2022 to compensate for the spinoff of its media assets. It hasn't started raising it again yet, but a return to annual payout bumps is probably around the corner.
At the end of June, AT&T had $126.9 billion in net debt, which was 2.87 times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) over the previous 12 months. Management is targeting a debt-to-adjusted EBITDA ratio of 2.5, which it could hit sooner than expected. On Sept. 30, the company announced an agreement to sell its remaining stake in DirecTV to TPG, a private equity firm, for $7.6 billion.
In addition to a cash injection from the sale of DirecTV, AT&T's cash flows are rising in response to a new fixed wireless service that runs on its 5G network. The new service pushed second-quarter consumer broadband sales up by 7% year over year.
Nobody expects AT&T's huge telecommunications business to grow rapidly, but it does own one of just three nationwide 5G networks. Given its enviable position in America's telecommunications oligopoly, profitability and steady gains seem more than likely.
2. Royalty Pharma
Developing new drugs is a risky business, but it's hard to find a more reliable trend than increasing demand for prescription medicines. In the U.S., prescription drug spending rose 8.4% in 2022 to $405 billion.
Royalty Pharma is a specialized lender, with stakes in dozens of different drugs. At recent prices, it offers a 3% yield and rapid growth. This financier's payout has risen by 40% since it began distributing a dividend in 2020.
One of the drugs Royalty Pharma owns a stake in is Cobenfy, the new schizophrenia treatment from Bristol Myers Squibb. At its peak, Royalty Pharma expects around $100 million in annual royalties from Cobenfy.
Cobenfy is one of eight potential blockbuster drugs in Royalty Pharma's late-stage-development portfolio that could launch by 2028. Potential peak annual royalties expected from these eight works out to more than $1.25 billion. That's a lot of potential growth for a company that expects portfolio receipts to land in a range between $2.7 billion and $2.775 billion this year.
Royalty Pharma reported second-quarter portfolio receipts that rose 12% year over year, and it doesn't need any new drug approvals to maintain this pace in 2025. Royalty receipts rose more than 10% year over year for nine blockbuster drugs it owns a stake in, while just four produced declining contributions.
Shares of Royalty Pharma have been trading for just 7.2 times forward-looking earnings expectations. That's an appropriate valuation for a business in decline, but this specialized lender could grow its top and bottom lines by a double-digit annual percentage for the next several years. A huge disconnect between this stock's valuation and the direction of its underlying business makes it a screaming buy right now.
Should you invest $1,000 in AT&T right now?
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.
2 No-Brainer Dividend Stocks to Buy With $100 in October was originally published by The Motley Fool