Every dollar of passive income you make from your portfolio is money you can use to reinvest into other assets and gain the benefit of compound growth over time. Over a long enough period, you can build a decent income stream, and if you’re especially patient, you can even start the process with a relatively small investment in some cases.
With that in mind, let’s take a look at a pair of A-list passive income stocks that pay reliable dividends so that you’ll understand how much money you’ll need to commit upfront to get yearly dividend flows of around $500.
1. Innovative Industrial Properties
Innovative Industrial Properties (IIPR 0.63%) is a favorite among dividend investors thanks to its lucrative role in the U.S. cannabis industry. Thanks to federal prohibition of marijuana, cannabis growers and sellers don’t have reliable access to capital, making it hard to expand their business. But, in some locales, they’re allowed to own real estate to cultivate their crops, and that’s where IIP comes in. IIP offers cannabis companies the opportunity to trade their greenhouse real estate for the cash they need, and then IIP becomes their landlord.
Over time, Innovative Industrial accumulates rent-paying tenants and cultivation facilities, building both its base of assets, which in the third quarter of 2022 totaled roughly $2.6 billion in gross assets, and its rental income stream, which generated a trailing-12-month net income of $139.3 million. And with more than $76.9 million in cash and equivalents, it still has plenty of juice to keep growing its property empire before it’ll need to take out new debt.
Currently, the real estate investment trust (REIT) pays a high dividend yield of nearly 6.45%. That means you’d only need to invest around $7,750 to get $500 in passive income each year. But you might be able to get away with investing even less if you’re a bit patient. IIP’s dividend grew by 80% over the last three years, culminating in a 24% hike for the fourth quarter of 2022. So, if you buy and hold a smaller number of shares than what it’d take to make the full $500 annually, the REIT’s dividend growth could make up the difference over a few years, though it’s likely the pace of dividend hikes will eventually slow down.
2. NextEra Energy
NextEra Energy (NEE -0.55%) is another company that patient dividend investing aficionados can’t get enough of. Its position as a multistate provider of clean and low-emissions energy means it has the stability to pay investors for years to come. It generates and transmits electricity using a handful of liquid natural gas (LNG) and oil-burning power plants, seven nuclear plants, a few coal-burning plants, and many fields of wind turbines and solar panels. And that’s how it profitably brought in trailing 12-month revenue of $19.8 billion while also growing its quarterly revenue by a shocking 53.8% year over year as of Q3 in 2022.
Given the ongoing green transition in the U.S., it’s reasonable to expect demand for NextEra’s renewables to rise in the years that come. Management agrees, predicting that the company’s annual earnings per share (EPS) will rise by around 10% per year through at least 2025.
Its forward dividend yield is around 2%, so you’d need to invest something in the ballpark of $24,630 to make $500 annually, which is a prohibitively large sum to put down all at once for most investors. You could also try buying a smaller number shares and waiting for the dividend increases to take care of the rest of the path to reaching $500 yearly, but with only 157.6% growth to the payout in the last 10 years, it’ll likely take you (quite) a bit longer than it would if you used the same strategy with IIP, so it probably makes more sense to plan to build up your position with a few purchases as you’re able to afford them.
Management is anticipating that it’ll continue to hike the dividend by approximately 10% per year through 2024. And, utilities have extremely reliable cash flows, and there’s little reason to suspect that NextEra would need to slash its payout assuming that its earnings continue to rise predictably, so time is likely on your side if you decide to build up a position over time.
Alex Carchidi has positions in Innovative Industrial Properties. The Motley Fool has positions in and recommends Innovative Industrial Properties and NextEra Energy. The Motley Fool has a disclosure policy.