Investing

Got $50,000? 2 Income-Generating Machines to Add to Your Passive Income Stream

Joey Frenette

Published: October 3, 2024 10:41 am

Passive income investors with $50,000 to invest should look carefully at dividend stocks as we head into the fourth quarter. Undoubtedly, the Fed has already taken action with its first rate cut, which was a rather large one (50 bps vs. 25 bps that many expected). And if more sizeable reductions are on the way going into 2025, the yields you see today may be a lot smaller by this time next year.

Indeed, all the 5% and 6% yielders you see could gravitate closer toward their historical normal ranges, making the so-called “4% rule,” which entails averaging a 4% yield from your income-focused investments, more relevant again as yields, rates, and this market return to normal.

Key Points About This Article

• $50,000 invested in dividend stocks could boost your passive income in a meaningful way!
• Wendy’s and Kraft Heinz still have swollen yields worth pursuing in this falling-rate environment.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
  

$50,000 can help you level up your passive income

With $50,000 invested in income-producing securities, one could average $3,000 in passive income per year if their portfolio averages a yield of 6%. If yields do fall by around 1% in the coming year, as the Fed rate cuts keep on coming, that same $3,000 annual amount of income could be more challenging to come by unless you’re willing to up your risk tolerance.

If you’re over 50 years of age and are hoping to retire in a decade or less, it’s not advisable to reach for higher yields in a lower-rate world. Doing so could prove risky.

Indeed, high rates have caused pressure and stress to some stocks, but for many risk-averse income investors looking to put new money to work, high rates have been a treat.

It’s nice to get a higher rate on your risk-free certificate of deposit (CD) while also picking away at a fine selection of dividend stocks yielding a few percent more than that of their past-decade historical averages.

The Fed’s cuts aren’t done yet. Expect yields to trend lower

Though the high-yield party isn’t yet over, I think it is just starting to wind down, especially if the Fed continues cutting interest rates quicker than pundits forecast.

Few thought the Fed would be dovish enough to dole out a 50 bps cut alongside a bit of dovish talk. Though I wouldn’t time Fed rate cuts from here, I do think a coming rate-cut spree could pull shares of stocks higher and yields lower, perhaps much lower.

While you shouldn’t rush into any investment, I think passive income seekers should be actively searching for higher yielders if they’re looking to transform their portfolios into income-generating machines. Here are two stocks worth checking out as they move higher on rate-cut optimism.

Wendy’s

Wendy’s (NASDAQ:WEN) is one of the highest-yielding fast-food stocks in the market right now, with its chubby 5.66% dividend yield. The stock has fallen under more pressure than its peers in recent years, thanks in part to the industry-wide inflation struggle. Either way, WEN stock is down 28% from its all-time high and seeming impenetrable ceiling of resistance of $24 and change.

The stock trades at a cheap 17.7 times trailing price-to-earnings (P/E) ratio, and with a plan in place to win back diners, Wendy’s comeback could be a huge one, especially as high inflation and rates draw to a close.

The company’s breakfast push has been quite a success thus far. With more unique items on the way (think Breakfast Baconator), it will be interesting to see how customers react as the firm expands its menu lineup while hoping to open more new stores. In any case, Wendy’s will have to proceed forward without help from its ex-chairman, Nelson Peltz, who resigned a few weeks ago.

Kraft Heinz

Kraft Heinz (NASDAQ:KHC) is another food play with a huge yield of 4.6%. Like Wendy’s, shares have been dragging their feet lately, now down close to 10% year to date. The condiments king faced stiff challenges from generics at the grocery store amid inflation.

However, the tough macro climate won’t last forever. Though it could be a real struggle to grow, single-digit growth is achievable, especially as consumers trade up to brand names again once inflation is done and over with.

Kraft and Heinz are solid brands, and with a modest 22 times trailing P/E ratio, the neglected Warren Buffett stock looks to be worth picking again for passive income investors who care more about dividends than capital gains.