Investing

Want $1,500 in Passive Income? Invest $17,000 in These Dividend Stocks

Gerelyn Terzo

Published: June 13, 2024 10:18 am

24/7 Wall Street Insight:

• The S&P 500 dividend yield is only about 2%. 
• If you want to generate higher passive income, you’ll have to target higher-yielding dividend stocks. 
• Don’t miss out on our latest report, “Two Dividend Legends to Hold Forever.”

Now that the cat is out of the bag on interest rates, with the Fed hinting toward a single rate cut in 2024, you might want to tweak your investment portfolio somewhat. One way to do that and bolster your passive income too is to add high-yielding dividend stocks.

Considering the S&P 500 index dividend yield hovers at approximately 2%, you will have to be willing to go outside of the box to generate the income stream you need. Fortunately, we’ve uncovered a model in which you can generally expect to collect checks in the mail.

These three stocks, British American Tobacco (NYSE: BTI), Greystone Housing Impact Investors (NYSE: GHI) and Western Midstream Partners (NYSE: WES), have an average dividend yield of just over 9%. If you were to invest $17,000 across these three dividend stocks, you could expect to earn $1,500 in passive income each year. Whether you need the income for retirement or just to keep up with inflation, these dividend stocks should put you on the path to steady passive income. 

British American Tobacco

• Dividend growth rate: 6%  
• Payout ratio: 9.57% 
• Quarterly dividend per share: $0.743059
• Stock price: $30.67

If investing in tobacco doesn’t go against your personal mission, then you might want to consider British American Tobacco. With a dividend yield of 9.86%, British American Tobacco is a rewarding stock to own. While U.S. revenue has felt the sting of falling cigarette sales, and a crackdown on vaping, the company is making strategic investments into new categories it expects will allow it to recapture momentum in the second half of the year. British Tobacco is targeting revenue growth in the range of 3%-5% by 2026. 

In a show of resilience, British Tobacco’s stock has been relatively flat year to date amid a market cap of $69.6 billion. But the company innovating in areas like glo Hyper Pro and Modern Oral, all of which are supporting its high cash flow business. British American Tobacco forecasts an operating cash flow conversion of over 90% this year, owing to what it describes as an “improvement mindset” and “optimizing resource allocation.” 

In 2024, the company lifted its dividend by approximately 6% $to $0.74 per share for an annual dividend of $2.97. And while the distribution amount is somewhat volatile, the payout has gone uninterrupted since 2017. In Q1, British American Tobacco announced a $895 million share buyback program on the heels of divesting its stake in India’s ITC. Allocating a percentage of your $17,000 in capital into BTI stock should bring you closer to your goal of $1,500 in passive income. 

Greystone Housing Impact Investors

• Dividend growth rate: 0.49% 
• Payout ratio: 58.12%
• Quarterly dividend per share:  $0.37
• Stock price: $15

With a dividend yield of 9.76%, Omaha, Neb.-based Greystone Housing Impact Investors is another high-yield dividend stock for passive income. The stock has taken it on the chin of late, with an 11% year-to-date decline. Greystone, a real estate investor that also oversees mortgage revenue bonds, announced its latest quarterly dividend of $0.37 per share on June 12.

The partnership had mixed Q1 results, including revenue of $9.37 million that represented a 25% year-over-year increase while missing Wall Street estimates. Meanwhile, its BUC of $0.42 fell from $0.59 in the year-ago period but still managed to beat consensus estimates.

Like much of the real estate industry, Greystone has been hurt by the high interest rate environment. But as rates begin to ease, albeit slowly, the company’s performance should begin to reflect that shift. The partnership has been resilient in this economy and despite a modest growth rate continues to make dividend distributions to investors, making it another good choice to bring you closer to your passive income goal of $1,500 per year.

Western Midstream Partners

• Dividend growth rate: 52% (year over year)
• Payout ratio: 72.8%  
• Quarterly dividend per share: $0.875
• Stock price: $38.42

With a dividend yield of 9.16%, Western Midstream Partners will help you achieve your passive income target. As a crude oil and natural gas pipeline company, Western Midstream Partners operates in the Delaware Basin in West Texas and New Mexico as well as the DJ basin in Colorado. The company has additional assets in South Texas, Utah and Wyoming.    

The company reported record Q1 results, in response to which it raised its Q1 per-unit base distribution by 52% to $0.875. Western Midstream ended Q1 with $1.5 million in free cash flow after distributions and capex of $205.4 million. Net income of $559.5 million and adjusted EBITDA of $608.4 million were fresh all-time highs for the company.

Earlier this year, reports emerged that Occidental Petroleum (NYSE: OXY) was looking to divest its stake in Western Midstream, in response to which the partnership stated that no sale process had been initiated. On the other hand, Western Midstream recently divested some non-core assets for proceeds of $790 million. The partnership forecasts 2024 free cash flow of $1.25 billion and adjusted EBITDA in the range of $2.2 billion and $2.4 billion, leading management to increase the distribution amount.