Conventional wisdom tells us to work smarter, not harder. But how? One way for investors to do so is with passive income, which is derived from ownership rather than labor or active involvement in an enterprise. One way that investors can create a stream of passive income is by owning stocks with generous and reliable dividends.
Why Invest for Passive Income?
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Investing for income has many possible benefits:
- Diversifying your portfolio
- As a cushion for the unexpected
- Reduces stress and anxiety
- For long-term growth
- To provide financial freedom and security
We screened our 24/7 Wall St. dividend equity research database, looking for stocks that pay healthy dividends. We found eight that combined can generate over $10,000 a year in passive income for an investment of $10,000 in each one. Several are in the energy industry, and a few are struggling at the moment.
Annaly Capital Management
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- Stock: Annaly Capital Management Inc. (NYSE: NLY)
- How many shares for $10,000: 523
- Dividend yield: 13.8%
- Annual passive income: $1,380.00
This New York City-based real estate investment trust (REIT) recently posted better-than-expected first-quarter earnings, but concerns about a dividend cut continue. Still, the share price increased afterward, though the stock is down 1% or so year to date. It is also more than 4% lower than a year ago. Analysts have a consensus price target of $20.47, which represents upside of about 8% in the next 52 weeks. However, none of the eight analysts who follow the stock currently recommend buying shares of this mortgage-focused REIT.
Berry
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- Stock: Berry Corp. (NASDAQ: BRY)
- How many shares for $10,000: 1,130
- Dividend yield: 8.5%
- Annual passive income: $2,790.00
The Dallas-based upstream energy company was established in 1909 and became public in 2018. Fourth-quarter revenue exceeded expectations, but earnings fell short. And the first-quarter report is pending. The stock is up about 25% years to date, most of that gain coming since the fourth-quarter report in March. It is taking a run at the 52-week high of $8.94. The consensus price target is $9.00, but analysts may update their targets and ratings if the first-quarter report is strong.
CVR Energy
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- Stock: CVR Energy Inc. (NYSE: CVI)
- How many shares for $10,000: 301
- Dividend yield: 6.0%
- Annual passive income: $1,330.00
This petroleum refiner and nitrogen fertilizer manufacturer just posted disappointing first-quarter results. The report was accompanied by a $0.50 per share dividend. On last look, shares were up more than 9% year to date, as well as almost 26% higher than a year ago. It outperformed the S&P 500 in both of those periods. However, the stock has overrun the analysts’ mean price target. But note that this stock has been a Carl Icahn top energy pick for more than decade.
Eagle Bancorp
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- Stock: Eagle Bancorp Inc. (NASDAQ: EGBN)
- How many shares for $10,000: 522
- Dividend yield: 9.3%
- Annual passive income: $762.00
When this Maryland-based regional bank posted mixed quarterly results recently, it blamed troubles in commercial real estate, as some of its peers have done. The latest dividend was $0.45 per share, the same it has been every quarter since summer of 2022. The stock has retreated more than 37% since the beginning of the year but is still well above the 52-week low of $16.72. The consensus price target was last seen at $22.67. Hitting that target would be a gain of more than 24%. Half of the six analysts who follow the stock recommend buying shares.
Enterprise Products Partners
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- Stock: Enterprise Products Partners L.P. (NYSE: EPD)
- How many shares for $10,000: 352
- Dividend yield: 7.1%
- Annual passive income: $782.00
This one is a popular pick for passive income, and the Houston-based midstream energy company just posted better-than-expected first-quarter earnings on rising revenue. It has been increasing its infrastructure in the Permian Basin and earlier this month got the nod to build an oil port in Texas. Shares are changing hands for more than 6% than at the beginning of the year. It has outperformed the Dow Jones industrial average in that time. Analysts anticipate about 17% further upside in the coming year, based on their consensus price target of $32.94. All but two of the 24 analysts who cover the stock recommend buying shares.
Hess Midstream
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- Stock: Hess Midstream L.P. (NYSE: HESM)
- How many shares for $10,000: 286
- Dividend yield: 7.5%
- Annual passive income: $732.00
Along with a mixed first-quarter report, this Houston-based company increased its quarterly distribution by 2.7% to over $0.65 per share. That payout has increased every quarter since early 2021. Despite pulling back a bit in the past week, the stock is still about 10% higher than at the start of the year. It has outperformed the broader markets in that time. Analysts are optimistic, with a consensus Buy rating and a mean price target of $37.75. Hitting that target would be a gain of about 9%.
Plains GP Holdings
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- Stock: Plains GP Holdings L.P. (NASDAQ: PAGP)
- How many shares for $5,000: 531
- Dividend yield: 6.8%
- Annual passive income: $788.00
This is another midstream energy infrastructure company headquartered in Houston. In its most recent quarterly report, it posted solid earnings growth and a positive outlook for the year. The next report is due soon. Year to date, the stock is up about 15%, despite pulling back from a multiyear-high of $19.77 earlier this month. The current consensus price target is just $19.39, but that is almost 6% higher than the recent share price. On average, analysts recommend buying shares, and the sentiment has increased recently.
Two Harbors Investment
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- Stock: Two Harbors Investment Corp. (NYSE: TWO)
- How many shares for $10,000: 797
- Dividend yield: 14.4%
- Annual passive income: $1,460.00
Like Annaly Capital Management, this is a mortgage REIT, based in Minnesota in this case. It just reported strong first-quarter results, along with a dividend commensurate with the prior one. This, despite the chief financial officer set to retire this year. The stock is about 8% lower than 90 days ago. Shares traded for more than $60 apiece at the beginning of 2020 but were last seen near $12.50. The consensus price target is up at $14.40, with a high target of $15.00, so analysts see some room to run in the coming year.
$10,000 in Passive Income
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So, for an $80,000 investment split evenly between these seven diverse stocks, the investor creates a passive income stream of a little over $10,000 per year.
| Stock | Investment | Annual Income |
|---|---|---|
| Annaly Capital Management | $10,000 | $1,380.00 |
| Berry | $10,000 | $2,790.00 |
| CVR Energy | $10,000 | $1,330.00 |
| Eagle Bancorp | $10,000 | $762.00 |
| Enterprise Products Partners | $10,000 | $782.00 |
| Hess Midstream | $10,000 | $732.00 |
| Plains GP Holdings | $10,000 | $788.00 |
| Two Harbors Investment | $10,000 | $1,460.00 |
| Total | $80,000 | $10,023.00 |
Is an $80,000 investment a little too rich? Note that a $5,000 investment in each stock results in annual passive income of about $5,012, while $2,500 investments net $2,056 per year, and so on.
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