Isn’t the idea of passive income a great idea? You earn money with little (if any) effort.
Of course, you need initial capital to make money. There’s no such thing as a free lunch. However, it is relatively easy to generate passive income once you have enough cash saved up.
Want to earn $10,000 in passive income this year? Invest about $115,000 in these three safe high-dividend stocks.
1. Ares Capital
I think ares capital (ARCC -0.10%) A great stock to buy in the first third of your first $115,000. The company’s dividend yield is 9.49%, so he can earn nearly $3,638 in passive income this year.
Ares Capital offers such high yields primarily due to its business structure. As a business development company (BDC), you must return at least 90% of your profits to shareholders in the form of dividends to be exempt from federal taxes.
Of course, a company must first generate enough profits to earn enough to pay dividends. That’s not a problem for Ares Capital. Net income under generally accepted accounting principles (GAAP) exceeded $1.5 billion last year, and 2022 net income more than doubled.
Ares Capital has been paying a quarterly dividend without reduction for 14 years. BDC’s highly diversified portfolio and strategy that focuses on the upper middle market reduces risk levels. CEO Kip DeVere recently acknowledged that more and more large, high-quality companies are coming to Ares Capital for financing because of the “stability we provide through market cycles.” Ta.
2. Energy transfer
Invested an additional $38,333 (one-third of the original $115,000). energy transfer (ET 0.90%) It also allows you to rake in a ton of passive income. The midstream energy provider pays out dividends with a yield of 8.93%. This is enough for him to earn more than $3,420 this year.
These distributions should be reliable. Energy Transfer’s fourth-quarter 2023 profit rose 15% year over year to $1.3 billion. The company had approximately $970 million in cash flow remaining in the fourth quarter after paying distributions.
We like that Energy Transfer is investing in growth. The company completed its acquisition of Crestwood Equity Partners in November 2023. Thanks to this deal, Energy Transfer now operates more than 125,000 miles of his pipeline in the United States.
I also like that the company’s management is fully involved in the game. Approximately 11% of Energy Transfer’s divisions are owned by management and independent board members. This equates to more than 5x more insider ownership than other companies in the industry.
3. Enterprise Product Partner
There’s another ultra-high-yielding midstream energy stock that could deliver big returns. enterprise product partner (EPD 0.96%) It boasts a distribution yield of 7.72%. If he initially invests his last third of $115,000, in 2024 he will have a passive income of nearly $2,960.
Enterprise Products Partners has a lot in common with Energy Transfer. Both companies operate large pipeline networks. The companies also own other midstream energy assets, including storage facilities and terminals.
Enterprise’s distribution yield is slightly lower than those of Ares Capital and Energy Transfer, but the company has a better distribution track record. Enterprise has increased its circulation tremendously for his 25 consecutive years with a compound annual growth rate of nearly 7%.
The midstream energy leader also has a history of holding up well through turbulent times. Enterprise Products Partners’ cash flow per unit increased during the 2007 and 2008 financial crisis. The company’s cash flow per unit declined only slightly during the oil price crash from 2014 to 2017 and the COVID-19 pandemic in 2020 and 2021.
Important considerations
If you keep up the math, investing $115,000 in Ares Capital, Energy Transfer, and Enterprise Products Partners could generate a total of just over $10,000 in passive income. However, there are some important considerations to keep in mind.
One or more of these companies may reduce their dividends. However, I think that is highly unlikely as their financial position is strong.
A more plausible scenario is that stock prices fall enough to offset the passive income from dividends. This is more likely to occur when there are significant macroeconomic headwinds or geopolitical uncertainties.
But as things stand, I think Ares Capital, Energy Transfer, and Enterprise Products Partners are positioned to deliver positive returns for investors this year. And each should generate a significant amount of passive income.
