Strategies for Achieving Financial Independence through Passive Income

My goal is clear: I want to achieve financial independence. For me, that means building a portfolio that produces enough passive income to cover my basic living expenses. To reach this goal, I’m focused on investing in assets that provide monthly income.

In early February, I’m planning to buy more shares of Energy Transfer (New York Stock Exchange: ET), Schwab US Dividend Stocks ETF (NYSEMKT: SCHD), and WP Carey (NYSE: WPC). These investments are my initial steps toward generating income this month.

Considering where to invest $1,000 now? Our analysts have shared their insights about the Best 10 stocks.

Energy Transfer offers a significant opportunity for passive income. Currently, the yield for this master limited partnership (MLP) stands at about 7.3%. This is notably higher than the S&P 500’s yield of just 1.1%. So, if you invest $100 in an MLP, you might expect around $7.30 in annual distributions, in contrast to only $1.10 from a S&P 500 index fund.

MLPs typically have a solid record of increasing distributions. They generally increase payments quarterly and aim for 3% to 5% annual growth. Energy Transfer, for instance, has achieved over 3% growth in distributions in the last year.

The company is in a great position to maintain its high-yield dividends. It’s generating a steady cash flow—about 90% from fees—and has a modest payout ratio of roughly 50% of its stable cash flow. Moreover, Energy Transfer has a strong pipeline of expansion projects, intending to invest between $5 billion and $5.5 billion this year, all designed to meet the rising demand for natural gas. These plans should bolster future distribution growth.

Moving on to the Schwab US Stock Dividend ETF, this fund offers a consistent and increasing source of income. It tracks 100 high-yield dividend stocks chosen for their quality traits, including yield and five-year dividend growth rates.

Currently, the fund’s dividend yield is around 3.8%, and its quarterly payments have been steadily rising in line with increased underlying holdings. Over the last five years, the average stock in this ETF has seen its dividends grow by more than 8% annually.

Most of the fund’s holdings have a strong track record of dividend increases. For instance, Coca-Cola has raised its dividends for an impressive 63 consecutive years, while Cheelan recently marked 39 years of growth. The Schwab US Dividend Stock ETF is well-positioned to deliver increasing cash to investors annually.

Lastly, WP Carey operates as a real estate investment trust (REIT), focusing on a diverse array of income-producing properties across North America and Europe. It usually owns very important real estate under long-term net leases that include rent increases, ensuring predictable rental income.

With its recent investments totaling $2.1 billion, mainly in warehouses and industrial properties, WP Carey is set up for growth. Last year, it expanded its portfolio significantly by acquiring net-leased fitness facilities as well.

Increased rental income—both from existing leases and new investments—will likely enable WP Carey to continue enhancing its dividends, which it typically raises quarterly. Just last year, dividends increased by 4.5%. With built-in rental growth and a robust financial profile, WP Carey aims to keep expanding its portfolio and increasing dividends.

In summary, Energy Transfer, Schwab US Dividend Equity ETF, and WP Carey all provide high-yield, steadily increasing income streams. This aligns perfectly with my strategy for passive income investing as I work toward achieving financial freedom. Therefore, these will be my first three income-related investments this month.

Before purchasing shares of the Schwab U.S. Dividend Stock ETF, it’s worth considering some professional insights about potential investments available right now.

For those interested, some of the analyst recommendations highlighted various stocks that have the potential for significant returns in the upcoming years.

Overall, the quest for financial independence through passive income is a journey—one that involves thoughtful investment choices and staying informed.