If you’re looking for the best income-producing investment, stocks that consistently increase their annual dividend are a great way to build passive income.
While there is no best way to invest for income, there are some different methods you can use to grow your investment portfolio without taking a lot of risks.
Here’s three stocks yielding 1%, 3%, and 5%, that I believe will help you generate passive income over the long haul.
For 1% Yield: Brown-Forman Corporation (BF.B)
The 1% is meant merely to provide a little income. Capital appreciation is the name of the game here.
My pick is family-controlled Brown-Forman Corporation (NYSE:BF.B), makers of Jack Daniels Tennessee whiskey and other fine spirits and wines. I recently called it one of seven consumer goods stocks to buy and hold.
Although the yield is tiny at 1.1%, which happens when your stock price goes up 55% in a single year, the company’s increased its annual dividend for 34 years straight.
Ten years ago, you might have bought its stock at $9 when it was paying an annual dividend of $0.27 for a dividend yield of 3%; today, it pays out double that while only yielding a little over 1%, but its stock trades for almost $58.
That ought to make up for the diminished yield, don’t you think?
For 3% Yield: Clorox Co (CLX)
From each of these three investments, my goal is to generate an annual total return of 8%. The higher the yield, the lower the expectation for capital gains.
So, with a stock yielding 3%, you should be expecting about 5% in capital appreciation every year, selecting your stock on this basis. Utility stocks probably aren’t a good idea.
My selection is a company whose products you use every day. I’m talking about Clorox Co (NYSE:CLX) whose brands include Clorox (naturally), Burt’s Bees, Glad, Brita, Kingsford and many others.
Over the past five years, CLX has averaged an annualized total return of 9.7%, which means it meets my 8% criteria. Of course, past performance isn’t indicative of future returns, but over the long haul, Clorox tends to deliver between 8-12% annually.
Some investors are worried that Clorox along with all the other publicly traded household products companies will suffer from lower margins in the future as a result of commodity inflation.
While that’s certainly a possibility, Clorox has been around long enough to know how to deal with such headwinds.
Stocks like Clorox are great to own because, in good times and bad, you will buy its products.
For 5% Yield: Brookfield Property Partners LP (BPY)
Okay, when it comes to investing in higher-yield stocks, it’s vital that you pay particular attention to a company’s financial health because stocks with higher yields often are that way because the stock price has fallen off a cliff due to a breakdown in the business’s fundamentals.
Like all dividend-paying stocks, you should be less excited about the juicy yield than you are about the rate at which the dividend payments have increased over the past 5-10 years.
It’s rare that you’ll find a Dividend Aristocrat — those S&P 500 companies who’ve increased their annual dividend payment for 25 consecutive years or more — yielding 5%.
In fact, the only S&P 500 Dividend Aristocrat stock that yields 5% or more at the moment out of 53 is AT&T Inc. (NYSE:T). The company is in the middle of a brouhaha for paying Michael Cohen, Donald’s Trump’s former personal lawyer, $600,000 in consultant’s fees to better understand the new Trump administration.
I’ve never been a fan of AT&T so the potential buying of favors doesn’t surprise me. We shall move on.
The company I have in mind is Brookfield Property Partners LP (NASDAQ:BPY), which is currently yielding 6.34%.
If you’re not familiar with BPY, it is one of the largest owners of commercial real estate in North America with $69 billion in assets. In late March, it came to an agreement with GGP Inc. (NYSE:GGP), the second-largest retail mall owner in the U.S., to buy the remaining 66% of the company it didn’t already own.
Current GGP shareholders have two options for the stock portion of the purchase price: They can receive shares of BPY or shares in a newly-created REIT, an unusual arrangement in this type of transaction, but one that was meant to accommodate GGP shareholders.
Like all Brookfield businesses, it has a lot of moving parts. I suggest you take a closer look at its latest quarterly earnings results and its most recent annual report to get a better understanding of how it makes money.
Historically, Brookfield likes to make contrarian bets, such as owning retail malls. It’s got a good track record of being right.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.