In this article, we will take a look at the 10 best passive income stocks to buy now. You can skip our analysis of these stocks and go directly to the 5 Best Passive Income Stocks to Buy Now.
Tech and growth stocks have been taking a beating due to concerns related to rising inflation and the subsequent interest rate hikes by the Federal Reserve. During such uncertain times, investors are looking to companies with a stable bottom line and cash flow that could generate decent passive income. Several market analysts feel that dividend-paying stocks might be a key to preserving your portfolio from diving deep into the red at a time when equities are fluctuating dramatically between losses and gains.
According to a report published by Janus Henderson Global Dividend Index, Covid-19 resulted in the global payouts falling 12.2% in 2020 to $1.255 trillion, reflecting a 10.5% underlying fall. One out of every eight companies stopped paying dividends, and one out of every five trimmed its payout, while the other two-thirds increased or held it constant. Banks contributed to a third of worldwide dividend cutbacks in terms of value, well over three times that of oil majors, which was the next most adversely impacted industry. Among the world’s major equity markets, the impact was more extensive in Spain and France, with 71% of corporations making cuts as opposed to only 9% in Canada. The relative stability of dividends in 2020 underscores the need to diversify income worldwide. Dividend payouts differed dramatically from one section of the world to the next, as well as between various sectors and businesses, as a result of the pandemic. Investors cannot know when or where the next crisis will strike, so diversifying their portfolios can help limit risk.
As per a report by McKinsey, increased dividends would make shares more appealing to retirees looking for a steady quarterly income. Dividend-paying stocks are considered stable in times of uncertain returns and growing volatility. Policymakers should support this movement by ensuring that dividends and capital gains are taxed equally. Some popular companies, such as The Coca-Cola Company (NYSE:KO), have been increasing their dividends for the past 50 consecutive years and are a part of the Dividend Aristocrat list. The Chief Income Strategist at The Oxford Club, Marc Lichtenfeld, said, “When you own a Dividend Aristocrat, you own shares of a business whose management has proven it understands its fiduciary responsibility to shareholders.”
He further elaborated that by targeting a quarter-century or more of yearly dividend increases, there is a lower risk of a company making impulsive and expensive investments or ill-timed stock buybacks. Furthermore, you can be certain that it is a corporation that understands how to enhance cash flow in order to keep the yearly dividend increases coming. Popular stocks such as Verizon Communications Inc. (NYSE:VZ), Wells Fargo & Company (NYSE:WFC), and Exxon Mobil Corporation (NYSE:XOM) are some of the best passive income stocks to buy now.
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Our Methodology
In this article, we take a look at the 10 best passive income stocks to buy now. We have analyzed the business fundamentals, analyst ratings, and growth prospects of each company. Over 912 hedge funds tracked by Insider Monkey at the end of Q1 2022 were analyzed to determine the hedge fund sentiment.
10 Best Passive Income Stocks to Buy Now
10. Realty Income Corporation (NYSE:O)
Number of Hedge Fund Holders: 22
Dividend Yield as of June 3: 4.33%
Realty Income Corporation (NYSE:O) is a San Diego, California-based real estate investment trust (REIT) that invests in a diversified real estate portfolio. The company pays out monthly dividends through the proceeds it generates from around 11,280 properties. Realty Income Corporation (NYSE:O) was founded in 1969 and since then has paid monthly dividends consecutively for the last 622 months.
Since its listing on the NYSE in 1994, Realty Income Corporation (NYSE:O) has increased its dividend over 115 times. In a note issued to investors on May 23, Andrew Rosivach at Wolfe Research gave Realty Income Corporation (NYSE:O) stock a Peer Perform rating with a price target of $73. The company declared a monthly dividend of 24.7 cents per share on May 17. The dividend will be paid out on June 15 to shareholders of record on June 1.
Realty Income Corporation (NYSE:O) posted its Q1 2022 results on May 4, where it surpassed the quarterly top-line and bottom-line estimates for the period and reiterated its FY22 funds from operations (FFO) guidance of $3.88 to $4.05 as opposed to a consensus estimate of $3.95.
As of Q1 2022, 22 hedge funds held a stake in Realty Income Corporation (NYSE:O) as of Q1 2022.
9. The Home Depot, Inc (NYSE:HD)
Number of Hedge Fund Holders: 75
Dividend Yield as of June 3: 2.49%
The Home Depot, Inc (NYSE:HD) is a Georgia-based home improvement retailer that provides tools, construction products, appliances, and services. America’s biggest firm in the home improvement industry is known as a market leader and a low-cost provider. The firm has been paying a quarterly dividend of $1.90 since Q1 2022, reflecting an annual dividend yield of 2.49% as of June 3.
On May 20, Steven Zaccone at Citi increased the price target on The Home Depot, Inc (NYSE:HD) from $327 to $348 and reiterated a Buy rating on the stock. The analyst increased the FY22 earnings forecast following the company’s quarterly results. The Home Depot, Inc’s (NYSE:HD) total inventory of new houses has surpassed the 142,700 level. It is a positive indicator because once these houses are bought, there is a high probability that the owners would have to pay for home improvement repairs, and it would be beneficial for a company like The Home Depot, Inc (NYSE:HD).
The Home Depot, Inc (NYSE:HD) was discussed in the Q1 2022 investor letter of Ensemble Capital. Here’s what the investment management firm said:
“Home Depot (7.7% weight in the Fund): The demand surge for remodeling and home improvement goods sparked by shelter in place orders, remote work going mainstream, and a shortage of homes on the market to buy, ran headlong into the supply chain crisis, triggering surging prices in the products Home Depot sells. But the company has been able to pass nearly all of these increased costs on to customers, with revenue growing 37% over the past two years while gross profits, or the profits the company makes on each item they sell, increased by 35%. Even this small difference appears to be due not to inflation eating away at Home Depot’s profits, but rather be a function of the huge increase in revenue the company has been generating in low margin lumber sales.”
8. Federal Realty Investment Trust (NYSE:FRT)
Number of Hedge Fund Holders: 23
Dividend Yield as of June 3: 3.82%
Federal Realty Investment Trust (NYSE:FRT) is another REIT on our list that invests in shopping centers across the Mid-Atlantic states like California and South Florida. We are inclined towards REITs because they are mandated to pay out at least 90% of their taxable income to shareholders and thus form good passive income stocks.
On May 12, RJ Milligan at Raymond James double upgraded Federal Realty Investment Trust (NYSE:FRT) stock from a Market Perform to a Strong Buy rating with a price target of $140. The analyst highlighted that the recent sell-off in the equities market provides an opportunity for investors to go long on the stock due to its attractive valuation in absolute terms and as compared to its peers as well. Furthermore, the bottom line of the Federal Realty Investment Trust (NYSE:FRT) is expected to increase by high single digits for the next few years.
Of the 912 hedge funds in Insider Monkey’s database, 23 funds held a stake in Federal Realty Investment Trust (NYSE:FRT) as of Q1 2022.
7. Medical Properties Trust, Inc. (NYSE:MPW)
Number of Hedge Fund Holders: 16
Dividend Yield as of June 3: 6.69%
Medical Properties Trust, Inc. (NYSE:MPW) is a Birmingham, Alabama-based REIT that invests in healthcare facilities and leases them out to operators. The company declared a quarterly dividend of 29 cents on May 26. The dividend will be paid out on July 14 and would be eligible for shareholders of record on June 16.
Medical Properties Trust, Inc. (NYSE:MPW) has grown its operations significantly in the last few years. The firm’s gross asset value has increased from $10.1 billion in 2018 to $22.2 billion as of Q1 2022. The increase in gross asset value has also resulted in a significant jump in revenue from $704.7 million in 2017 to $1.55 billion in 2021. As of June 3, Medical Properties Trust, Inc.’s (NYSE:MPW) dividend yield stands at 6.69%.
Medical Properties Trust, Inc. (NYSE:MPW) was held by 16 hedge funds at the end of Q1 2022. Cardinal Capital was the leading hedge fund investor in the company during the first quarter.
6. Brookfield Renewable Partners L.P. (NYSE:BEP)
Number of Hedge Fund Holders: 18
Dividend Yield as of June 3: 3.57%
Brookfield Renewable Partners L.P. (NYSE:BEP) is a Toronto, Ontario-based limited partnership (LP) that owns and operates renewable energy assets across the world. The portfolio of the firm comprises hydroelectric, solar, wind, and storage facilities in Asia, Europe, North America, and South America.
On May 9, Brookfield Renewable Partners L.P. (NYSE:BEP) received an upgrade by Sean Steuart at TD Securities from a Hold to a Buy rating with a price target of $41 following the Q1 2022 results. The analyst highlighted that the corporation is well prepared to face the short-term challenges, and in the long run, Brookfield Renewable Partners L.P. (NYSE:BEP) will benefit due to increased focus on cleaner energy and reduction of carbon emissions. The company can be expected to be a beneficiary during inflationary times as 70% of its revenues are indexed to inflation.
Here’s what ClearBridge Investments said about Brookfield Renewable Partners L.P. (NYSE:BEP) in its Q1 2022 investor letter:
“Brookfield Renewable is a pure-play renewables operator and developer headquartered in Canada, focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield Renewable’s globally diversified, multi-technology renewables business makes it an attractive partner. Brookfield’s development pipeline stands at 18,000 MWs, providing confidence the company can meet its targeted double-digit cash flow growth through to 2025. The market narrative around the energy transition and energy security, along with increasing fossil fuels prices which have driven greater focus on switching to renewables, helped Brookfield shares in the quarter.”
In addition to Brookfield Renewable Partners L.P. (NYSE:BEP), stocks such as Verizon Communications Inc. (NYSE:VZ), Wells Fargo & Company (NYSE:WFC), Exxon Mobil Corporation (NYSE:XOM) are some of the other passive income stocks attracting hedge fund investment.
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Disclose. None. 10 Best Passive Income Stocks to Buy Now is originally published on Insider Monkey.
