Best Stocks For Creating A Passive Income Stream

Everyone would like to have a passive income stream. Passive income can help to supplement your existing income. The great thing about a passive income stream is that it is income that you do not work for on a full time day to day basis. Passive income is defined as income that you earn from business activities that you do not materially participate in.

One of the best ways to generate a passive income stream is to buy stocks that pay dividends.

Before the 2008 financial crisis, banks were known for their safe, stable dividend yields. All of that changed a few years ago and now banks are some of the worst yielders in the market. Many banks have yields below 0.50%. So, where can an investor turn for passive income?

Here are the best stock sectors for creating a passive income stream

1. Utility Companies

Utility companies are paying out some great yields right now. Look at all of the utility stocks that are currently yielding over 5%.

FirstEnergy Corp (FE) 6.20%

Progress Energy (PGN) 5.70%

Duke Energy Corp (DUK) 5.50%

PP&L Corporation (PPL) 5.40%

American Electric Power Cor (AEP) 5.10%

2. Real Estate Investment Trusts (REIT)

I love REIT’s because they are required to pay 90% of earnings out to shareholders via distributions. I have already written a post on a few risky REIT’s with double digit yields. Here are a few safer plays.

Redwood Trust (RWT) 6.90%

Federal Realty Investment Trust (FRT) 3.40%

Saul Centers (BFS) 3.30%

Public Storage (PSA) 3.20%

Simon Property Group (SPG) 3.10%

3. Healthcare Stocks

 

 

Healthcare stocks may be struggling with growth but they are certainly not lacking in cash. Some of the world’s largest healthcare companies are giving cash back to shareholders. Here are 5 of the highest yielders.

Eli Lilly (LLY) 5.80%

GlaxoSmithKline (GSK) 5.20%

Bristol-Myers Squibb (BMY) 4.90%

Pfizer (PFE) 4.30%

Merck (MRK) 4.30%

All of these yields beat anything that your local bank is paying right now on savings accounts, certificates of deposit, or any other accounts.

Comments

  1. avatar Barry says:

    I would also recommend consumer product companies. Many of the world’s best consumer brands pay healthy, growing dividends. Companies like Coca Cola (yield 2.71%) Pepsi Co (yield 2.97%) and Procter and Gamble (yield 3.07%) have long history of growing dividends.

    When you own a stock that increases it’s dividend regularly, over time your yield on cost can reach 10% or more!

  2. avatar Andy Hough says:

    These are some good dividend stock suggestions. I have a portfolio of dividend stocks but I don’t own any of the ones you listed. I hope to eventually build the portfolio up to where I can live off the dividend income.

  3. Those are all great yields. How are dividends taxed in US?

    I just bought Unilever and I thought it was good yield and solid earnings. Reasonable P/E ratio.

  4. Don’t forget Verizon ($VZ) at 5.73%!

    Also, writing upside calls, in conjunction with purchasing high-yielding stocks, is a good way to supplement your income stream.

  5. avatar James the Wanderer says:

    There are a few “oddball” financials that also make sense. Alpine (AOD), Annaly (NLY) and Chimerica (CIM) all have certain “niche” operations or markets that allow them to operate in this strange, over-regulated market. Right now they are paying:
    AOD (17%) NLY(15%) CIM(17%)
    I’ve owned AOD for years now, since a former broker recommended it. Used to own NLY, not currently (probably get it again soon). Own CIM as well, but only for six months or so.
    Yes, I know it seems to good to be true; but for AOD, at least, I can tell from personal experience – it’s a great company. The share price and dividends have both gone down in this market – but as per your example, what’s your savings account yielding right now?

  6. avatar Buck Inspire says:

    Thanks for the tip. :) I was looking at stocks, but never thought of considering dividends. Will dig deeper on this. This sounds so logical, what would be a reason for not investing in stocks that pay dividends?

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