Investors looking to grow their passive income streams can do so without breaking their budget.
At the current prices Hercules capital (NYSE:HTGC), Altria Group (NYSE:MO)And AT&T (NYSE:T) offer an average return of 8.5% at current prices. That’s high enough to turn an initial investment of $5,890 into an annual dividend income of $500.
There are currently many dividend stocks with even higher yields. What sets these three apart is that their underlying businesses appear capable of meeting their current obligations and growing their earnings in the coming years.
1. Hercules Capital
Hercules Capital is a Business Development Company (BDC) that allows anyone with a brokerage account to participate in exciting venture capital investments. For example, Hercules invested in Palantir Technologies a few years before it went public. Today, Palantir has a stock market valuation of over $50 billion.
Many of Hercules Capital’s investments will fail, but winners like Palantir more than offset the losses. Since 2010, this BDC has doubled its regular quarterly dividend from $0.20 per share to the current $0.40 per share.
Each year, Hercules declares an additional dividend, which it divides into four equal parts. Currently, investors are entitled to an additional dividend of $0.08 per share per quarter. If the next additional dividend is the same, investors will receive a return of 9.9% from this share in the coming year.
Hercules shareholders can reasonably expect more Palantir-style investments in the future. In the first quarter, BDC made $956 million in debt and equity commitments, a new company record.
2. Altria Group
Altria Group is a giant tobacco company that markets the leading Marlboro brand throughout the United States. Its first attempt to convert adult smokers to e-vapor products, Juul, was initially successful but ultimately failed due to a ban on flavored vaporizers by the Food and Drug Administration (FDA) being enacted several years ago.
Altria Group offers a dividend yield of 9% at current prices. The stock is under pressure as investors worry about whether the company can continue to increase its payout. Total cigarette sales fell 10% in the first quarter.
Cigarette sales are declining, but the amount of nicotine consumed is still increasing at about the same pace as population growth. Many consumers have switched to illegally flavored vaping products like Elf Bar, but access to illegal vaping products will be more difficult from now on. The number of vape import denials monitored by the FDA rose to 452 in the first quarter, compared to just four in the same period last year.
Altria Group is well-positioned to benefit from increased enforcement of the FDA’s flavor ban. Last year, the company launched NJOY, the only FDA-approved pod-based vape system. The company shipped one million NJOY devices and 10.9 million consumable pods in the first quarter.
Despite declining cigarette sales and competition from an illicit vaping market, Altria Group expects adjusted profit to grow 2% to 4.5% this year. The dividend payout probably won’t be the fastest growing in your portfolio, but it will likely continue to move steadily in the right direction.
3. AT&T
AT&T has far fewer competitors than Altria Group. The fifth-generation (5G) wireless network was expensive to build, but it is one of only three options Americans are following T Mobile‘s acquisition of Sprint in 2020.
As the second-largest member of America’s tripartite telecommunications oligopoly, AT&T is well positioned to deliver steadily increasing dividend payments. At current prices, the stock offers a dividend yield of 6.6%.
AT&T’s broadband Internet segment was losing fixed-line customers to its competitors’ fixed wireless services. That trend reversed thanks to the launch of AT&T’s fixed wireless Internet service late last year, as well as the continued rollout of its fiber service within reach of customers.
AT&T reported free cash flow of $16.8 billion last year, and that number is expected to reach a range of $17 billion to $18 billion this year. This is enough to significantly reduce the debt burden while maintaining the current dividend commitment. At the current pace of deleveraging, I wouldn’t be surprised if AT&T starts increasing its payout again in 2025. Buying some shares of the telecommunications giant to hold for the long term is a great way to increase your passive income.
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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.
Want an additional $500 in annual dividend income? Invest $5,890 in these 3 high-yield dividend stocks. was originally published by The Motley Fool