3 Passive Income Stocks That Pay High Dividends

Trading can be a highly active pursuit, with some day traders making as many as one hundred transactions per day. But most investors don’t have the time or the risk threshold to be quite that active in the market. While active trading has its success stories, the classic buy-and-hold long-term strategy has been proven to be effective and safer for most in the long run.

Buying a dividend-paying stock and reaping the gains over time is a tried-and-true way to make passive income, because it generates income with minimal work involved. For investors who are looking for ways to maximize passive income, high-dividend stocks are an attractive alternative.

Dividends are the portion of a company’s profits that are returned to shareholders, and investors commonly reinvest their quarterly dividends into the same stock. For example, if you own 100 shares of a company, which is trading at $20 and it pays out a quarterly $0.50 dividend, you will receive a dividend payment of $50 every 3 months.

If you reinvest that dividend you acquire 2.5 more shares so you end up owning 102.5 shares of the company. If you continue that Dividend Reinvestment Plan (DRIP) over time, the stock gains plus dividend payments can exponentially increase wealth. While it’s easy to understand the benefits of passive income, it’s harder to find stocks that consistently deliver.

Here are 3 passive income stocks that pay high dividends: Verizon, Chubb, and Realty Income.

Is Verizon Stock Good For Passive Income?

Verizon (NYSE: VZ) is a well-known telecommunications carrier that does much more than support cell phone coverage.

Yes, the company provides broadband and wireless services for businesses and consumers but it also generates revenue from device sales, phone plans, and internet sales. Indeed, it’s one of only 3 companies that provide such services across the entire USA.

While Verizon is consistently rated one of the best cell phone providers in the country, it’s the company’s dividend that attracts passive income investors.

With an annual dividend yield of 7.52% and a quarterly payout of $0.65 per share, VZ is a mainstay on dividend investors’ watchlists.

But there’s more to passive income than just a dividend. Verizon currently has a P/E ratio of 6.94, which is relatively low compared to the communications industry. It’s a sign the stock may be undervalued. A discounted cash flow forecast analysis suggests upside to $42 per share, translating to as much as 22% at the present time.

Even though Verizon has a strong dividend and may be undervalued, Verizon stock is down 36% over the past 5 years. That kind of decline, should it persist, could negate the benefits that the dividend delivers.

Nevertheless, most analysts mostly agree that VZ is due for a rally this year. The consensus forecast has the stock rising 13.8% over the next 52 weeks, with VZ shares having as much as a 30% upside. 

Does Realty Income Stock Provide Passive Income?

Real Estate Investment Trusts (REITs) are an increasingly popular way to invest in commercial real estate. Property management groups buy multiple properties and then offer investors an opportunity to buy a portion of the overall property conglomerate. 

Realty Income (NYSE:O) is one of the largest REITs in the world, featuring over 13,100 properties. As a rule, REITs are obligated to pay out 90% of their income to investors, which explains why O has such an attractive annual dividend yield of 5.43%.

O is currently trading at a P/E ratio of over 42, which is a red flag for investors that the stock may be overvalued presently. However, the majority of analysts remain bullish and, by consensus, have a $69.07 price target on the stock.

Certainly, the company’s shares have performed better than Verizon stock over the past 5 years, trading nearly even but Realty Income has underperformed the S&P 500’s 55% gain over the same time period.

We should note that our own discounted cash flow forecast analysis suggests fair value sits closer to $55 per share. If that proves to be accurate then the purchase of O shares is largely for income purposes, not capital appreciation.

Is Chubb a Good Stock For Passive Income?

Chubb (NYSE:CB) is an insurance carrier that handles everything from life insurance to property and casualty insurance.

The Swiss company has grown rapidly over the years to its current market capitalization north of $80 billion. While not as established in the US, Chubb has made significant inroads and is still growing.

Chubb investors may not be wowed by the company’s 1.70% annual dividend yield, but it equates to an $0.86 quarterly dividend per share.

CB share price has performed much better than its passive income brethren over the past 5 years, with a 49.31% return over the past 5 years. While that slightly underperformed the S&P 500, the dividend meant that investors could accumulate more shares every quarter and benefit from the stock gains as well. 

The company’s P/E value of 14.52 is on the high side versus historical norms, but compared to the insurance industry at 20, CB is comparably undervalued.

Analysts forecast upside of 33% to $268 per share, meaning the total return from holding CB shares could eclipse those of other dividend stocks thanks to the quarterly payout plus the share price appreciation combined.

3 Best Stocks For Passive Income

High paying dividend stocks can be a powerful way to earn passive income, and Verizon, Chubb, and Realty Income stocks are popular choices.

Verizon is firmly established and has the highest dividend yield of the three. But the stock has faced challenges over the years and share price declines have affected total returns for investors. Still, the company appears to be undervalued at current levels and the current price could be a good entry point for long-term investors.

Realty Income is one of the largest REITs in the world. The stock has traded close to even over the past 5 years. Even though O is approaching overvaluation, the fact that the REIT must continue to pay 90% of its taxable income to its shareholders means that dividend income is guaranteed for the long haul. Better yet, O pays out a monthly dividend so shareholders relying on the income to pay monthly costs will find it a good option.

Chubb is a leader in the insurance industry and continues to gain traction. CB has performed on par with the S&P 500, and the stock has continued to pay out solid dividends for investors.

It’s important to understand the value that dividends provide but to also be aware that stock losses could nullify some of the benefits that dividends offer. Buying dividend stocks when they are selling at a discount will maximize the passive income these stocks can deliver over time.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.