Generating passive income is a key aspect of my early retirement strategy. I'm working to build up my sources of passive income so that I no longer have the stress of needing to work for money. The primary aspect of my plan is investing in companies that pay above-average dividends that should steadily rise in the decades ahead.
Realty Income (NYSE: O), Brookfield Infrastructure (NYSE: BIPC)(NYSE: BIP), and Enbridge (NYSE: ENB) are core pieces of my passive income production strategy. Here's why I own these magnificent dividend stocks and plan to continue adding to my positions in the coming years to generate even more dividend income.
A model of consistency
Realty Income has lived up to its name over the years. The real estate investment trust (REIT) has paid its investors a durable and steadily rising stream of dividend income over the years. The company has paid 650 consecutive monthly dividends throughout its history. It has raised its payout 126 times since coming public in 1994, including for 107 straight quarters. The REIT has grown its dividend at a 4.3% compound annual rate over that three-decade period.
It's in an excellent position to continue paying a growing monthly dividend. The REIT has a very durable real estate portfolio. Roughly 90% of its rent comes from properties leased to tenants in industries resilient to the impact of recessions or the threat of e-commerce. Meanwhile, it utilizes long-term net leases, which supply very stable rental income because tenants cover building insurance, maintenance, and real estate taxes. Those leases also typically feature annual rental rate escalation clauses.
Realty Income has a very conservative financial profile, which enables it to continue investing in income-producing real estate. It has a vast opportunity set, with an estimated $14 trillion total addressable market for net lease real estate in the U.S. and Europe. The REIT believes it can acquire enough properties each year to grow its cash flow per share by 4% to 5% annually. That should support a similar growth rate in its more than 5%-yielding dividend.
High-octane growth
Brookfield Infrastructure operates a globally diversified infrastructure platform focused on the utilities, midstream, transportation, and data sectors. Most of its businesses generate stable cash flow backed by long-term contracts or government-regulated rate structures, which account for about 90% of its earnings. Meanwhile, 85% of its income is either indexed to or protected from inflation.
The company pays out 60% to 70% of its stable cash flow in dividends. It retains the rest to help fund new income-generating infrastructure investments. Brookfield Infrastructure also has a strong investment-grade balance sheet. The company estimates its strong growth drivers should enable it to boost its cash flow per share by more than 10% annually.
Brookfield Infrastructure's growing cash flow should enable it to increase its dividend, which currently yields around 4%, by around 5% to 9% annually. The company has raised its dividend every year since coming public, growing it at a 9% compound annual rate since 2009.
Ample fuel to keep the streak alive
Enbridge has a terrific track record of paying dividends. The Canadian pipeline and utility operator has paid dividends for over 69 years. It has increased its payout in each of the past 29 consecutive years, growing it at a 10% compound annual rate.
While Enbridge probably won't grow its dividend that fast in the future, it has plenty of fuel to continue driving its payout higher. The company currently has about $17.7 billion of secured capital projects in its backlog. Those projects include oil storage and export capacity, natural gas pipeline expansion projects, a liquefied natural gas export terminal investment, gas utility expansions, and renewable power projects. The company's current slate of capital projects should enter service through 2028, providing it with lots of visibility into future growth.
Enbridge estimates that its growth drivers should increase its cash flow per share by 3% annually through 2026 and by around 5% per year after that. That drives its belief that it should be able to grow its nearly 7%-yielding dividend by up to 5% annually in the future.
Income-producing machines
Realty Income, Brookfield Infrastructure, and Enbridge have excellent records of increasing their high-yielding dividends. Since that should continue in the coming years, I plan to keep adding to my positions in these elite passive income stocks. Their high-yielding and steadily rising dividends should enable me to eventually reach my passive-income goal.
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Matt DiLallo has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Enbridge, and Realty Income. The Motley Fool has positions in and recommends Enbridge and Realty Income. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.
3 Magnificent Dividend Stocks I Plan to Continue Buying for a Lifetime of Passive Income was originally published by The Motley Fool