Work smarter, not harder, says the adage. One way to do that is with passive income, which is derived from ownership rather than labor or active involvement in an enterprise. One of the best ways for investors to create a stream of passive income is by owning stocks with healthy and reliable dividends or distributions.
We screened our 24/7 Wall St. dividend equity research database, looking for stocks that pay healthy dividends. We found seven that combined can generate over $3,750 a year in passive income for an investment of $7,500 in each stock.
Cal-Maine Foods
- Stock: Cal-Maine Foods Inc. (NASDAQ: CALM)
- How many shares for $7,500: 133
- Dividend yield: 9.2%
- Annual passive income: $693.00
This American fresh egg producer recently agreed to acquire a broiler processing plant, hatchery, and feed mill in Missouri from Tyson Foods. Despite being in the red last year as bird flu affected the company’s results, the stock is up almost 5% year to date. Analysts remain cautious, with a consensus Hold rating and a mean price target that indicates less than 3% upside potential.
Crown Castle
- Stock: Crown Castle Inc. (NYSE: CCI)
- How many shares for $7,500: 68
- Dividend yield: 5.9%
- Annual passive income: $444.75
This Houston-based real estate investment trust (REIT) joined the Fortune 500 in 2019. It operates and leases more than 40,000 cell towers and around 90,000 route miles of fiber. The stock has retreated more than 23% in the past 12 months, while the S&P 500 is up almost 23%. Analysts are cautiously optimistic, with a mean price target that indicates the shares have about 9% potential upside in the next 12 months, yet the consensus recommendation is to hold shares.
Gilead Sciences
- Stock: Gilead Sciences Inc. (NASDAQ: GILD)
- How many shares for $7,500: 100
- Dividend yield: 3.9%
- Annual passive income: $293.25
Many acquisitions have helped this biotech giant grow since its founding in 1987. The most recent was CymaBay Therapeutics for $4.3 billion. And Newsweek recently named Gilead as one of America’s best workplaces for diversity. The share price is about 8% lower year to date, largely due to recent disappointing drug trial results. The stock is still up almost 20% in the past two years, and the consensus price target suggests it has almost 18% upside potential in the next 12 months.
Kinder Morgan
- Stock: Kinder Morgan Inc. (NYSE: KMI)
- How many shares for $7,500: 447
- Dividend yield: 6.8%
- Annual passive income: $508.50
This energy infrastructure giant is headquartered in Houston, and it has one of the highest dividends in the S&P 500. A disappointing fourth-quarter report has the stock down 5% or so year to date. Though the analysts are mostly on the sidelines, their consensus price target of $20.50 per share would be a 52-week high. Note that some executives were selling shares before and after the first of the year.
Prudential
- Stock: Prudential Financial Inc. (NYSE: PRU)
- How many shares for $7,500: 70
- Dividend yield: 4.8%
- Annual passive income: $365.25
Headquartered in Newark, New Jersey, this company provides insurance, retirement planning, investment management, and other financial products and services globally. It recently named a new chief financial officer. The stock is up about 15% since the most recent quarterly report, but note that it has underperformed the S&P 500 over the past five years. Analysts are cautious, with a consensus Hold rating and a mean price target that signals only marginal upside potential.
Two Harbors
- Stock: Two Harbors Investment Corp. (NYSE: TWO)
- How many shares for $7,500: 600
- Dividend yield: 14.6%
- Annual passive income: $1,095.00
Another REIT, this one is focused on investing in, financing, and managing residential mortgage-backed securities, mortgage servicing rights, and other financial assets in the United States. Two Harbors recently announced the retirement of its chief financial officer. The stock is down more than 10% year to date, in part due to posting mixed fourth-quarter results. The 52-week trading range is $9.83 to $17.31 a share, and the consensus price target is $14.33. Note that the CEO and other officers have been selling shares since early this year.
UPS
- Stock: United Parcel Service Inc. (NYSE: UPS)
- How many shares for $7,500: 51
- Dividend yield: 4.7%
- Annual passive income: $351.75
This Atlanta-based package delivery giant is sometimes considered a bellwether for the global economy. UPS recently announced layoffs and mandated that workers return to the office full time. Shares are down almost 9% since the disappointing fourth-quarter report. The decline was not offset by a modest dividend increase. For now, the consensus price target is $158.95, which is much less than the 52-week high of $197.80. Only five out of 26 analysts recommend buying shares.
$3,750 in Passive Income
So, for a $52,500 investment split evenly between these seven diverse dividend stocks, the investor creates a passive income stream of a little over $3,750 per year. At that rate, the investor will have enough to add an additional stock to the list in two years and further increase the income stream.
| Stock | Investment | Annual Income |
|---|---|---|
| CALM | $7,500 | $693.00 |
| CCI | $7,500 | $444.75 |
| GILD | $7,500 | $293.25 |
| KMI | $7,500 | $508.50 |
| PRU | $7,500 | $365.25 |
| TWO | $7,500 | $1,095.00 |
| UPS | $7,500 | $351.75 |
| Total | $52,500 | $3,751.50 |
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