There are lots of ways to invest $1,000 these days. You could take a flyer on the latest cryptocurrency or hyped AI growth stock. Those bets could turn your investment into a lot more money, or they could lose some or all of your investment.
A lower-risk option is to invest that cash into an income-generating investment like dividend stocks. While you can still lose money investing in dividend stocks, they've historically been a solid investment. Over the last 50 years, the average dividend stock in the S&P 500 has delivered a 9.2% annualized total return (more than double the 4.3% return of non-payers), according to data from Hartford Funds and Ned Davis Research. At that rate, you could double your money in eight years, with the dividend income contributing significantly to the higher return.
There are lots of good dividend stocks to choose from. Vici Properties (VICI 2.32%), Verizon (VZ 2.03%), and Kinder Morgan (KMI 2.58%) stand out for their ability to pay high-yielding and steadily rising dividends, making them ideal passive income investments.
A low-risk wager
Vici Properties is a real estate investment trust (REIT) that owns experiential properties like casinos and other hospitality and entertainment properties. The company leases these properties back to the operator under very long-term net leases. That lease structure requires its tenants to cover building insurance, maintenance, and real estate taxes, enabling the REIT to collect very stable rental income.
The company pays out about 75% of its steady cash flow to investors via a dividend yielding around 5.5%. That's several times above the average stock (given the S&P 500's 1.4% dividend yield). The REIT would turn a $1,000 investment into about $55 of annual dividend income at that rate.
VICI Properties has done a stellar job growing its dividend since it came public in 2018. It has delivered a peer-leading dividend growth rate of 7.9%, well above the 2.2% average. The REIT is in an excellent position to continue growing briskly. It retains about a quarter of its steady cash flow, which it uses along with its strong balance sheet to fund new investments. Recent investments have included a $105 million construction loan to support a Margaritaville Resort development (that it has the option to acquire), up to $700 million to fund renovations at The Venetian Resort Las Vegas, and a $250 million loan backed by several Great Wolf Resorts. These and future investments should grow its cash flow and dividends.
Your pipeline to steady dividend income
Natural gas pipeline giant Kinder Morgan generates very stable cash flow. It gets paid fixed fees as volumes flow through its pipeline assets. The company pays out about half its steady cash flow to shareholders via a dividend yielding almost 6%.
The company uses the cash it retains to fund high-return expansion projects, repurchase shares, and maintain its financial flexibility. Kinder Morgan currently has about $3.3 billion of capital projects under construction that it expects to complete over the next few years. They'll supply it with incremental income as they come online. Kinder Morgan will also use its financial flexibility to make acquisitions. For example, it purchased a portfolio of natural gas pipelines in South Texas late last year for $1.8 billion.
Kinder Morgan's growth investments give it the fuel to increase its already high-yielding dividend. It raised its payout by about 2% earlier this year, its seventh consecutive year of increasing its dividend. With plenty of growth coming down the pipeline, Kinder Morgan should have no problem continuing to push its payout higher.
Cashing in on communications
Telecom giant Verizon's dividend yield is nearly up to 7%. The company also produces very steady cash flow to cover its monster payout. Last year, it produced $37.5 billion in cash flow from operations, easily covering its capital expenses of $18.8 billion and dividends of $11 billion. The company used the remaining cash to strengthen its already solid balance sheet.
Verizon has been investing heavily in building out its 5G network. That investment should pay dividends in the coming years by growing revenue, earnings, and cash flow. It should give the company the funds to continue paying down debt, increasing its dividend, and eventually starting to repurchase shares.
The company gave its investors a modest raise of around 2% last fall. That was its 17th straight year of growing the dividend, the longest current streak in the U.S. telecom sector. With its free cash flow continuing to rise and balance sheet growing stronger, Verizon should have no trouble continuing to increase its dividend in the coming years.
Producing prodigious passive income streams
Because Vici Properties, Kinder Morgan, and Verizon pay much higher-yielding dividends than the average stock, they allow you to generate a lot more income from every dollar you invest. They should also be able to continue growing their dividends as their earnings rise, adding to your investment returns over the long term. That makes them great places to invest $1,000 into right now.
