The S&P 500 has gained an impressive 35% over the past year. Because of that, its dividend yield has fallen from 1.7% a year ago to around 1.2% these days. That's its lowest level in more than 20 years. It's also well below its peak of more than 4% toward the end of the 2008-2009 financial crisis.
To put that into a more tangible context, a $10,000 investment made in the S&P 500 right now would only produce about $120 of dividend income over the next year. That compares to the $170 or so that would be collected by someone who invested the same amount a year ago.
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While the yields of the S&P 500 and many of the stocks in it have dwindled to paltry levels, there are several great income stocks you can buy now that would provide much better ones.
Realty Income
Realty Income's (NYSE: O) yield at its current share price is more than 5.5%. The real estate investment trust (REIT) has paid 653 consecutive monthly dividends throughout its history. Moreover, it has raised its payouts 127 times since coming public in 1994 (including for the last 108 quarters in a row), growing them at a 4.3% compound annual rate.
The landlord generates stable rental income. It distributes about 75% of its cash flow to investors via dividends, retaining the rest to invest in new income-generating properties. Realty Income also boasts one of the strongest balance sheets among its REIT peers. Those factors put its high-yielding dividend on a firm foundation.
Realty Income should be able to continue increasing its payouts. It routinely acquires additional income-generating real estate, and is on track to invest about $3.5 billion into new properties this year. It also acquired fellow REIT Spirit Realty in a $9.3 billion deal. These investments should grow its cash flow per share by nearly 5% this year. With trillions of dollars of commercial real estate across the U.S. and Europe that it could choose from among to buy, Realty Income has a long growth runway.
Kinder Morgan
Kinder Morgan's(NYSE: KMI) dividend yields nearly 4.5% at the current share price. The natural gas pipeline giant has increased its payouts for seven straight years.
The midstream company produces stable cash flow. Roughly 68% of its earnings are take-or-pay or hedged -- meaning it gets paid its contract rate regardless of commodity prices or volumes -- while another 27% is fee-based, where it gets paid a fixed rate on variable volumes.
The company pays out a little more than 50% of its cash flow via dividends. It retains the rest to fund expansion projects and maintain its financial flexibility to opportunistically repurchase shares or make acquisitions. The company currently has more than $5 billion of commercially secured expansion projects in its backlog that will come online between now and the end of 2028. That gives it lots of visibility into its future cash flow growth. Meanwhile, it sees rich opportunities to continue expanding. It should have plenty of fuel to continue boosting its high-yielding dividend in the coming years.
Verizon
At its current share price, Verizon(NYSE: VZ) yields more than 6.5%. The mobile and broadband giant has increased its payouts annually for 18 straight years, the longest current streak in the U.S. telecom sector.
The company is a cash-gushing machine. It has produced a whopping $26.5 billion in cash flow from operations during the first nine months of this year, easily covering its capital spending ($12 billion) and dividend payouts ($8.4 billion). It used the excess free cash to strengthen its already solid balance sheet.
Verizon is investing heavily in expanding its 5G and fiber networks, which should increase its cash flow in the future. Meanwhile, the company recently agreed to buy Frontier Communications in a $20 billion deal to further enhance its fiber network. That acquisition will also boost its earnings, driven by at least $500 million in cost savings. The company's growth-related investments should enable it to continue increasing its dividend.
Great ways to generate more income
Realty Income, Kinder Morgan, and Verizon currently offer much higher dividend yields than the average stock in the S&P 500. They also have excellent records of increasing their payouts, and they seem likely to keep their streaks going. Because of that, they are great stocks to buy for income right now.
Should you invest $1,000 in Realty Income right now?
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Matt DiLallo has positions in Kinder Morgan, Realty Income, and Verizon Communications. The Motley Fool has positions in and recommends Kinder Morgan and Realty Income. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.
