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Want $11,000 in Passive Income? Invest $75K in These Dividend Stocks

Gerelyn Terzo

Published: June 20, 2024 8:32 am

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• If you’ve got $75,000 to invest, these three dividend stocks will generate steady passive income.
• Dividends are a good way to protect your portfolio against volatility. 
• Discover a dividend play for the energy boom in our latest report, “Two Dividend Legends to Hold Forever.”

Passive income is one of the common paths to wealth building. One of the best ways for investors to generate passive income is through dividend stocks, particularly those that provide a steady stream of income every year. Considering the current volatility in the stock market, dividend income offers investors a way to offset any weakness in their portfolios through regular cash distributions. So whether you’re looking to invest for retirement or for another major financial milestone, building a strategy around dividend stocks is a good way to go. 

While many investors flock to high-profile dividend stocks to choose from, like Kimberly-Clark (NYSE: KMB), Pfizer (NYSE: PFE) and Cisco Systems (Nasdaq: CSCO), there are plenty of other names that could help you to achieve your passive income goals too. We have uncovered three high-yield dividend stocks with an average yield of approximately 14.6% – NexPoint Real Estate Finance (NYSE: NREF), Mach Natural Resources (NYSE: MNR) and the PIMCO Dynamic Income Fund (NYSE: PDI). By investing $75,000 across these three names, you could expect to collect roughly $11,000 each year in cash distributions, based on their current payouts.

NexPoint Real Estate Finance: Sticking to Its Knitting 

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• Dividend Growth Rate: 12.1% (annualized three-year)
• Dividend Yield: 16.4% 
• Payout ratio (forward): 99.41% 
• Quarterly dividend per share: $0.50   
• Stock price: $13.08

With a dividend yield of 16.4%, NexPoint Real Estate Finance, a REIT, offers investors an ultra high yield. If investors are splitting their $75,000 across these three dividend plays evenly, at $13.08 per share, they could purchase just over 1,900 shares.

In its most recent quarter, NexPoint’s dividend was “0.88 times covered by earnings available for distribution and 1.02 times covered by cash available for distribution,” according to management. While the share price has declined 18.7% year-to-date, dividend distributions have been steady, including a preferred-stock dividend in early June. The most recent quarterly regular dividend of $0.50 per NREF common stock was announced last month and is payable on June 28, just in time for any end-of-month expenses. The REIT has been making uninterrupted cash distributions including regular and special dividends for at least the past five years.

Investors will notice there are risks tied to NexPoint, given its high payout ratio. However, it’s important to remember that NexPoint, founded in 2012 by James Dondero, operates in the real estate industry. This includes market segments like multifamily, single family, life sciences and storage, where tight macro lending conditions and elevated interest rates have taken their toll of late. With inflation finally beginning to show signs of easing, and the Federal Reserve good for one rate cut in 2024, NexPoint should be positioned to participate in the industry recovery. 

NexPoint management is committed to the areas in which they’re experts — owning and operating commercial real estate assets — so they are not going to change their strategy just because of challenging market conditions. Wall Street analysts recommend holding NREF stock, with an average price target of $13.75 per share, reflecting approximately 5% upside potential. 

Mach Natural Resources: Growth by Acquisition 

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• Dividend growth rate: 0.13% (3-year)
• Dividend Yield: 15.3%
• Payout ratio: 97% 
• Quarterly dividend per share:  $0.75
• Stock price: $18.81

Now that the price of oil is hovering above $80 per barrel, it might be a good time to add energy companies to your portfolio, like Oklahoma City-based oil and natural gas producer Mach Natural Resources. With a dividend yield of 15.3%, Mach Natural Resources pays a quarterly dividend of $0.75 per common unit. The company, which was established in 2017, prioritizing four pillars: cash distributions, acquisitions, low leverage, and reinvesting below 50% of operating cash flow back into the business. 

In Q1, the company announced a cash distribution of $0.75 per unit, for a combined $71.25 million, owing to its focus on free cash flowing assets. Mach generated $239 million in revenue and $42 million in net income, while oil and gas production surpassed expectations, owing in part to cost efficiency. At the end of Q1, Mach Natural Resources had $150 million in cash on its balance sheet. While it’s a highly acquisitive company that is focused on adding reserves, management has no intentions of draining that for acquisitions. The company has steadily returned cash to investors for six years. 

Mach Natural Resources has what it describes as a “vast position” in the Mid-Continent region. They’ve seen heightened competition on deals of late, where buyers have been paying “substantial premiums” for undeveloped land. If that keeps up, management is willing to explore other “niches” outside of this region. 

PIMCO Dynamic Income Fund: Monthly Cash Distributions 

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• Dividend growth rate: 4.91%
• Dividend Yield: 12.5%
• Monthly dividend per share: $0.22  
• Stock price:  $18.59

Rounding out our three picks is the PIMCO Dynamic Income Fund, with a dividend yield of 12.5%. The fund, whose strategy is income first and capital appreciation second, invests in fixed-income sectors around the world. It typically allocates 25% or more of its assets into mortgage-related securities and as much as 40% into issuers with exposure to emerging market securities. This PIMCO fund pays a monthly distribution of $0.22 per share and has been steadily making distributions for over a decade. Investors receive dividend distributions monthly, so you won’t have to wait around for passive income.