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3 Dividend Growth Stocks to Buy Now for a Lifetime of Passive Income
If you’re an individual investor trying to set yourself up with a dividend income stream that can fuel your retirement dreams, there are two very different ways to make it happen. You could fill your portfolio with stocks that offer ultra-high yields upfront, but dividend yields generally rise because the market doesn’t expect significant increases.
The other way to build your passive income stream takes longer, but it can be a lot more effective over time. Companies like Archer-Daniels-Midland (NYSE: ADM), Hercules Capital (NYSE: HTGC), and Royalty Pharma (NASDAQ: RPRX) are raising their payouts rapidly. The yields they offer aren’t too exciting right now, but investors who hold them for the long run could have an enormous passive income stream when they’re ready to retire.
Read on to see why investors want to add these stocks to their portfolios and hold them for at least a decade.
1. Archer-Daniels-Midland
Archer-Daniels-Midland (ADM) is a leading agricultural supply chain manager and processor. The stock offers a 3.4% dividend yield at recent prices, and its payout has grown by 8.6% annually since 2020.
If you’ve eaten packaged food items lately, there’s a very good chance ADM purchased, transported, or processed some of the ingredients. For decades, ADM has leveraged its enormous global asset base to originate, process, and transport agricultural commodities between over 190 countries.
Lots of businesses can crush soybeans, but doing it at a price point that attracts food producers isn’t easy. ADM is so well established that it’s the least expensive source for many food producers.
Commodity prices can fluctuate, but ADM’s economies of scale have allowed it to produce reliable profits in good economic times and bad. Lower commodity prices in the first half of 2024 lowered adjusted operating profits by 30% year over year, but this probably won’t prevent the company from raising its dividend payout again next January.
Profits are down, but ADM still generated $3.16 billion in free cash flow over the past 12 months. It needed just 31% of this sum to meet its dividend commitment, which leaves plenty of room to raise it further.
2. Hercules Capital
Hercules Capital is a specialized financier of start-up businesses in the life sciences and technology industries. Buying equity stakes in disruptive businesses before they start recording recurring revenue is extremely risky. That said, success for one can offset dozens of failures.
With equity stakes in successful businesses such as Palantir Technologies and Axsome Therapeutics, this business development company’s (BDC) regular quarterly dividend has held steady or risen since 2009.
As a BDC, Hercules Capital can avoid income taxes by distributing at least 90% of profits to shareholders as a dividend. To compensate for lumpy cash flows, it also declares a supplemental dividend each year. Investors who buy Hercules Capital at recent prices can receive a 9.5% yield if both dividends hold steady in 2025. Even if Hercules cuts its supplemental dividend to zero, investors will receive a 7.9% yield from the regular quarterly payout.
If we factor in Hercules Capital’s supplemental dividend, shareholders have seen their quarterly payments rise by 50% since 2020. Gains might not occur in a straight line, but further dividend growth seems likely. The BDC invested $462 million during the second quarter, which was 27% more than a year earlier.
3. Royalty Pharma
Royalty Pharma is another specialized finance business. Unlike Hercules, this one is entirely focused on drugmakers that need help paying for clinical trials. Instead of asking for monthly loan payments, though, it asks drugmakers for a percentage of their future drug sales. At recent prices, it offers a 3% dividend yield.
It isn’t unusual for start-up biotech businesses to burn through $1 billion before they have any products to sell. It didn’t happen overnight, but the underwriters at Royalty Pharma have proven themselves capable of picking out which ones are likely to produce successful drugs. Its portfolio currently includes royalties on over 35 commercial-stage products.
Royalty Pharma has deployed about $15 billion worth of capital since 2020, and its activity is accelerating. It deployed about $2 billion in the second quarter alone.
Since 2020, Royalty Pharma has raised its dividend payout by 40%, and there will likely be more big payout bumps in the years ahead. The drug industry’s favorite finance partner expects royalty receipts to rise by 9% to 12% this year. With heaps of recent investments that haven’t had a chance to mature yet, huge dividend payment raises could be in your future if you buy this stock now and hold it over the long run.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,285!*
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Apple: if you invested $1,000 when we doubled down in 2008, you’d have $44,456!*
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Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $411,959!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 14, 2024
Cory Renauer has positions in Axsome Therapeutics. The Motley Fool has positions in and recommends Axsome Therapeutics and Palantir Technologies. The Motley Fool has a disclosure policy.
3 Dividend Growth Stocks to Buy Now for a Lifetime of Passive Income was originally published by The Motley Fool
Sales of existing homes fell in September as house hunters remained on the fence about buying a home despite mortgage rates easing during the month.
Existing home sales slipped 1.0% from August’s tally to a seasonally adjusted annual rate of 3.84 million, the National Association of Realtors said Wednesday. That marked the lowest rate since October 2010. Economists polled by Bloomberg expected a pace of 3.88 million in September.
On a yearly basis, sales of previously owned homes were 3.5% lower in September. The median home price rose 3.0% from last September to $404,500, marking the 15th consecutive month of annual price increases.
“Home sales have been essentially stuck at around a 4 million-unit pace for the past 12 months,” NAR chief economist Lawrence Yun said in a press release.
There have been significant challenges that have weighed on sales activity, including a lack of inventory, escalating prices, and elevated mortgage rates. Last month, however, those factors turned around.
The Federal Reserve cut its benchmark rate by half a percentage point in September. While the central bank doesn’t set mortgage rates, its actions influence their direction of movement.
Mortgage rates hit the lowest level since February 2023 ahead of the Fed decision to ease, while listing inventory picked up.
But overall, that hasn’t been enough to entice buyers.
“Some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election,” Yun said.
Tesla (TSLA) reported mixed third quarter results after the bell on Wednesday, but the stock jumped in after-hours trading as investors cheered the earnings beat, higher gross margins, and news that Tesla’s cheaper EV is on track for production next year.
For the quarter, Tesla reported revenue of $25.18 billion vs. $25.4 billion per Bloomberg consensus, higher than the $25.05 billion it reported in Q2 and also topping the $23.40 billion Tesla reported a year ago. Tesla posted adjusted EPS of $0.72 vs $0.60 expected, on adjusted net income of $2.5 billion and free cash flow of $2.9 billion.
The closely watched gross margin figure came in at 19.8%, much higher than the 16.8% expected.
Tesla shares were up nearly 8% in after hours trade.
“We delivered strong results in Q3 with growth in vehicle deliveries both sequentially and year-on-year, resulting in record third-quarter volumes,” the company said in its earnings deck. “Preparations remain underway for our offering of new vehicles — including more affordable models — which we will begin launching in the first half of 2025.”
Earlier this month, Tesla (TSLA) announced third quarter deliveries that slightly missed expectations, sending the stock lower.
Tesla said it delivered 462,890 vehicles in Q3, up 6.4% quarter over quarter, to mark the first quarter of delivery growth this year. The numbers also came in ahead of the 435,059 EVs the company delivered in the year-ago period. But Wall Street had expected Tesla to deliver closer to 463,897, according to Bloomberg.
“Refreshed Model 3 ramp continued successfully in Q3 with higher total production and lower cost of goods sold quarter-over-quarter. Cybertruck production increased sequentially and achieved a positive gross margin for the first time,” Tesla said in its report.
Tesla said it expects vehicle deliveries to achieve “slight growth” in 2024.
Ahead of Tesla’s Q3 disclosure, shares were down approximately 11% since Tesla revealed its robotaxi, dubbed the Cybercab, at its showy “We, Robot” event from the Warner Bros. studio lot in Burbank, Calif., on Oct. 10.
The debut and release of a cheaper EV is what many analysts and industry watchers believe will spur the next leg higher of EV sales, as even CEO Elon Musk has said before. During its Q2 report, Tesla and Musk said the company remains on track for the production of new vehicles, likely including a cheaper EV, in the first half of next year.
Investors and analysts were left wanting more details from Tesla’s “We, Robot” event on the Cybercab itself and detailed testing plans, along with questions about the development of Tesla’s sub-$30,000 EV, dubbed the Model 2.
Transak disclosed a data breach affecting over 92,000 users after a phishing attack compromised an employee’s laptop.
CryptoCurrency
The Dow plummets more than 600 points and is on track for its worst day in more than a month
The Dow Jones Industrial Average and other major indexes suffered a steep decline Wednesday afternoon as the yield on the benchmark 10-year U.S. Treasury note continued its upward climb, reaching 4.23%—a level not seen since July.
In the afternoon, the Dow dropped 631 points, or 1.4%, heading for its worst day in over a month. Meanwhile, the tech-heavy Nasdaq and the S&P 500 declined by 2.2% and 1.4%, respectively. However, there was some relief for investors as oil prices eased, with West Texas Intermediate (WTI) futures trading around $70.65 per barrel.
The Federal Reserve’s Beige Book, released in the afternoon, reported that economic activity remained largely unchanged across the 12 Federal Reserve Districts, with the Southeast significantly impacted by a harsh storm season.
On Wednesday, all eyes are on Tesla (TSLA) as the company prepares to release its latest earnings report. Analysts expect earnings per share to be 60 cents, down from 66 cents a year ago but an improvement from 52 cents in the previous quarter, according to FactSet estimates. Revenue is projected to hit $25.4 billion, compared to $23.3 billion in the third quarter of 2023 and $25.5 billion in the preceding quarter.
Apart from Tesla, investors are closely monitoring earnings reports from other major corporations, including AT&T (T), Boeing (BA), and Coca-Cola (KO).
McDonald’s stock plunges over 5%
McDonald’s (MCD) shares took a sharp hit, falling over 5% after the Centers for Disease Control and Prevention (CDC) linked the chain’s Quarter Pounder burgers to an E. coli outbreak. The outbreak has led to 10 hospitalizations and one death, driving a significant decline in McDonald’s stock during the afternoon trading session.
As of now, 49 cases have been reported across 10 states between Sept. 27 and Oct. 11, with a majority of illnesses occurring in Colorado, Nebraska, Utah, and Wyoming. The CDC noted that most of those affected had eaten a Quarter Pounder. Investigators are working swiftly to identify the contaminated ingredient.
Spirit Airlines stock soars 30%
After a failed attempt at merging with JetBlue (JBLU-0.80%), ultra-low-cost carrier Spirit Airlines (SAVE+28.01%) is reportedly turning back to a familiar partner. The Wall Street Journal (NWSA-0.34%), citing people familiar with the matter, reports that Spirit and Frontier Airlines (ULCC+3.05%) are in early talks over a potential merger. The news sent Spirit’s stock soaring nearly 30% on Wednesday.
–Francisco Velasquez and Rocio Fabbro contributed to the article
The semi-autonomous region of Tanzania is taking advantage of a sandbox regulatory framework adopted in July.
Bitcoin’s correction ignited selling in altcoins, which are slipping below critical support levels.
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