Investing

Want $22,500 in Passive Income? Invest $20,000 in These Dividend Stocks

John Seetoo

Published: July 1, 2024 9:30 am

24/7 Wall Street Insights

• With inflation showing few signs of appreciable reversal, prices for other goods and services will inevitably continue to rise.
• Among the passive income options available to the majority of people, those with liquid assets may find dividend stocks to be a solution for covering bills and other expenses that have eclipsed normal budgets.
• For investors seeking dividends, click here for a free report on two high dividend stocks.

CNBC recently published an article on its website addressing rising prices at the pump. With average prices already up 10% since March and continuing to climb, CNBC cited several reasons:

• Warmer weather cyclically triggers more drivers on the road.
• The switch to summer gasoline blends can add as much as 15 cents per gallon.
• CNBC states that the current trend is not geopolitically event specific. While the Ukraine War was cited as a factor for last year’s rise, it still has not ended to date. Any adverse supply chain events could cause a future price spike.

Dividend Stocks: A Viable Solution For Many

Inflation has continued with few signs of any reversal. Therefore, the prices of all goods and services are continuing to climb, albeit perhaps not as rapidly as in recent years. Households are caught between the proverbial rock and hard place: tighten belts and cut spending to the bone, or find ways to generate extra income. If the former is untenable, the latter option is the only route to take. As most people already work full-time jobs, family or other obligations can make a second job out of the question. 

For those with liquid assets to invest, dividend stocks may offer an attractive combination of yield, diversification, low cost entry, liquidity, and other features not available from other asset classes.

24/7 Wall Street has an extensive database of dividend stocks that are frequently showcased in other articles. Since over a third of S&P 500 stocks are also dividend stocks, there is a broad range of dividend stocks available to appeal to investors from all walks of life. Yield, risk tolerance volatility, cost of entry and industrial sector are all variables that can be mixed, matched, and ultimately assembled for a portfolio to satisfy any investor. 

The following stocks are samples of high-yield offerings, based on market price at the time of this writing. 

Oxford Lane Capital

Stock #1 : Oxford Lane Capital (NASDAQ: OXLC)

Yield: 20.08%

Shares for $20,000: 3,724.35

Annual Dividend Income: ~$4,016

Headquartered in Greenwich, CT, Oxford Lane Capital has built a successful business model as a specialized investment manager. This is accomplished by Oxford Lane’s investments in Collateralized Loan Obligations (CLO) of often unrated or below investment grade companies. 

The CLOs are leveraged against specified company assets, and are thus in a senior position to other debt the company may have, such as revolving credit lines, credit cards, auto loans, real estate, or other types of loans. 

With a $1.4 billion market cap, Oxford Lane’s recent financial report showed a 76.64% profit with 71.74% operating margin. Revenue growth year over year was 20.70%.

Mach Natural Resources LP

Stock #2 : Mach Natural Resources LP (NYSE: MNR)

Yield: 16.90%

Shares for $20,000: 1,049.32

Annual Dividend Income: ~$3,380

Categorized in the oils-energy sector, OK based Mach Natural Resources acquires, develops, and produces oil and natural gas assets in the Anadarko Basin region. This area encompasses parts of Oklahoma, Kansas, and Texas. The company only went public in 2023. Its founder is natural gas legend Tom Ward, who previously co-founded Chesapeake Energy in 1989. 

For the fiscal year ending December 2024, Mach Natural Resources is expected to earn $4.03 per share, which is a change of 459.7% from its 2023 reported number.

TORM plc

Stock #3 : TORM plc (NASDAQ: TRMD)

Yield: 16.55%

Shares for $20,000: 557.10

Annual Dividend Income: ~$3,310

Founded in 1889 with main offices in both London, UK, and in Denmark, TORM plc is in its 135th year as a UK shipping company. It specializes in the transport of refined petroleum products, such as gasoline, jet fuel and naphtha, as well as fuel oil.

TORM plc’s  80 vessel fleet primarily ranges between 45,000 and 114,000 DWT (Dead Weight Tons), which classifies them in the LR1 (Long Range 1: 55,000-79,999 DWT) and LR2 (Long Range 2: 80,000-159,999 DWT) categories. 

The company acquired (8) fuel efficient vessels in just the past year. These included (4) MR (Mid Range) vessels, roughly 8-9 years old, and (4) LR2 vessels, about 12 years old. This proactive approach to fleet management upgrades with an eye towards cutting fuel costs for the future was lauded by analysts. The strategic use of time charters, including 2-year contracts for LR2 vessels, is a good example of the TORM approach to managing cost exposure and maintaining revenue stability. 

Moreover, TORM has secured contract coverage for a proportion (64%) of earning days in Q4 at favorable rates. These arrangements suggest strong topline visibility and lucrative potential earnings growth.

Voya Global Equity Dividend and Premium Opportunity Fund

Stock #4 : Voya Global Equity Dividend and Premium Opportunity Fund (NYSE: IGD)

Yield: 11.70%

Shares for $20,000: 3,891

Annual Dividend Income: ~$2,340

Mutual Funds come in a wide variety of flavors. A closed-end mutual fund traded on the NYSE, Voya Global Equity Dividend and Premium Opportunity Fund invests in the global equity market with attention to high dividends. Scottsdale, AZ based IGD is a global fund, so foreign stocks can just as easily be added to the portfolio as a US one. 

The $460.6 million assets under management (AUM) fund will also use a covered call writing strategy against individual stocks, ETFs, or indices to enhance returns. Deployment of  some forex hedging strategies to mitigate currency risk in its foreign stock holdings is also part of management’s purview.

As of June, 2024, the fund’s top sector weightings are in financials – 22.31%, healthcare – 14.50%, and industrials – 11.22%, with 67.43% US companies, 30.91% non-US. 

Voya Global Equity Dividend and Premium Opportunity Fund’s top three largest holdings are: 1) Johnson & Johnson (NYSE: JNJ) – 1.62%, 2) Merck & Co., Inc. (NYSE: MRK) – 1.54%, and 3) Chevron Corp (NYSE: CVX) – 1.50%. 

Virtus Equity & Convertible Income Fund

Stock #5 : Virtus Equity & Convertible Income Fund (NYSE: NIE)

Yield: 10.15%

Shares for $20,000: 8,768

Annual Dividend Income: ~$2,030

Another closed-end mutual fund, the Virtus Equity & Convertible Income Fund is managed by Allianz Global Investors out of New York City. The $694.9 million AUM fund invests primarily in equities, but also has an appetite for convertible securities, which deliver coupon income with an option to convert to a prearranged number of common equity shares at the discretion of the owner.

As of June, 2024, Virtus Equity & Convertible Income Fund’s top sector weightings are in technology – 32.41%, financial services – 15.22%, and consumer cyclical – 12.16%, with healthcare at 11.50%.

The fund’s top three largest holdings are all members of the “Magnificent 7”: 1) Microsoft Corp. (NASDAQ: MSFT) – 5.51%; 2) Amazon (NASDAQ: AMZN) – 3.68%; 3) Apple Inc. (NASDAQ: AAPL) – 3.17; and the largest US company as of June 18th at: 4) NVIDA (NASDAQ: NVDA) – 2.75%.

Rithm Capital Corp.

Stock #6 : Rithm Capital Corp. (NYSE: RITM)

Yield: 8.98%

Shares for $20,000: 1,098.56

Annual Dividend Income:~ $1,796

Although direct investment in real estate is an excellent sector for creating passive income, it comes with a prohibitively high cost for many investors. Fortunately, Real Estate Investment Trusts (REITs) are a category of stocks that allows investors an entry to the real estate arena on a mutual fund modeled, prorated level. As they are required to remit 90% of profits to shareholders, REITs leverage the large influx of investor funds for its operations and the shareholders receive the fruits of their labor without the inherent obligations and headaches.

Rithm Capital Corp. focuses its $32 billion AUM on the mortgage servicing rights (MSR) area. This includes MSR financing receivables, title, appraisal and property preservation, real estate securities, call rights, excess MSRs, Single Family rental properties, and residential mortgage loans; and services advance investments; consumer and business purpose loans; and asset management related investments. 

Since Rithm Capital doesn’t own properties directly, it doesn’t bear the possible liabilities from frivolous lawsuits, nor the on-site maintenance and management problems that can come with large commercial or residential real estate properties. 

From a dividend investor’s perspective, Rithm Capital’s dividend payout ratio is 45.66% ($1.00/$1.50). There is more than sufficient cushion against any unforeseen events that could affect payouts, short of a mortgage industry economic meltdown. 

Ternium, S.A.

Stock #7 : Ternium, S.A. (NYSE: TX)

Yield: 8.97%

Shares for $20,000: 543.77

Annual Dividend Income:~$1,794

Ternium, S.A. is a steel and iron ore mining company based out of Luxembourg. Ternium’s product line runs the gamut of steel products, from slabs, round bars, tiles, galvanized products, and billets to pre-engineered metal building systems. The mining segment provides iron ore and pellets. The company also resells scrap steel and provides engineering and distribution services for housing, construction, automotive, transportation and energy industry clients. 

Operationally, Ternium’s primary geographic areas are in Brazil, Argentina, Colombia, Mexico, Guatemala, and the US. It also has joint ownership of Usiminas in Brazil with Nippon Steel and Companhia Siderúrgica Nacional. Usiminas is one of the largest steel production companies in South America. Its 9.5 million metric ton per year capacity comprises 28% of Brazil’s annual total steel output.

USA Compression Partners LP

Stock #8 : USA Compression Partners LP (NYSE: USAC)

Yield: 8.79%

Shares for $20,000: 836.82

Annual Dividend Income:~$1,758

When it comes to liquids, gravity and other factors can come into play in order to shift them into containers for transport or through pipes. Gasses, which are often as light as air, is a different story. In order to get gasses to move in a desired direction, air pressure or other methods, such as liquifying or freezing the gasses, are required. 

Austin, TX headquartered USA Compression Partners, LP is one of the largest US natural gas compression service providers. It specializes in providing high horse-powered natural gas compression units and services to oil wells, gas providers, infrastructure utility outlets, and other commercial and industrial applications.  Its areas of focus are: Permian/Delaware, Marcellus/Utica, Mid-Continent/SCOOP/STACK, South Texas, East Texas, Louisiana, Rockies.

The company executed a $1 billion refinancing recently by issuing $1 billion in 7.13% 2029 maturity senior notes to redeem higher interest debt and shore up its revolving credit line. Analysts cited these and other positive management steps along with reported year over year revenue growth of 16.3%.

Analysts’ revised targets now anticipate that USA Compression Partners will increase 2024 cash flow by 18.7% and report a 35% jump in EPS.

Sabra Health Care REIT Inc.

Stock #9 : Sabra Health Care REIT Inc. (NASDAQ: SBRA)

Yield: 8.30% 

Shares for $20,000: 1,382.15

Annual Dividend Income:~$1,660

REITs can not only specialize in a specific service niche, but also in industrial sectors that may have unique requirements. In the case of Tustin, CA based Sabra Health Care REIT Inc., it owns and manages properties configured for the health care services sector. These properties include nursing and care facilities, behavioral health centers, senior care facilities, and specialty hospitals. Some of its major relationships include: Signature Healthcare, The Ensign Group, and Avamere. 

Sabra has 374 properties across the US at the time of this writing. The breakdown type is as follows:

• Nursing/transitional care – 53.9%
• Managed Senior Housing – 16.5%
• Behavioral Health – 14.5%
• Leased Senior Housing – 10.3%
• Specialty Hospitals – 4.0%
• Remainder – cash.

Dividend stocks combine liquidity, sector diversification, wide risk tolerance ranges, and a number of other attractive features, but they aren’t foolproof. Regular monitoring for news events and market changes is advised. For example, a company might become a takeover target, and if successful, the acquirer is under no obligation to continue dividends. Taking the prudent approach should make for a successful portfolio, and the dividends will hopefully cover the elevated gas prices and other expenses for the summer.