In this article, we will take a look at some of the best stocks for passive income.
Passive income is money earned with little to no ongoing effort, unlike traditional income that requires active work. Instead of exchanging time for money, passive income allows you to generate earnings while focusing on other aspects of life. One common example is rental properties. After the initial effort of purchasing a property, preparing it for tenants, and finding reliable renters, landlords can collect rent each month without needing to be actively involved in daily management.
With the economic landscape constantly changing, many individuals are looking for ways to achieve financial stability beyond traditional full-time jobs. A 2024 Financial Wellness Survey by First National Bank of Omaha found that 53% of Americans now have at least one passive income source, highlighting a rising trend in diversifying income streams.
Vending machines gained traction as a passive income opportunity during the 2020 pandemic. Between 2019 and 2023, discussions about passive income and vending machines saw a significant rise on social media, with mentions tripling on X and increasing sixfold on Instagram, according to social media management firm Sprinklr. Google searches for passive income also jumped by approximately 75% during this period. While many Americans have found success with this investment, its long-term viability remains uncertain.
Investing in stocks, particularly dividend-paying equities, offers a clear and reliable way to generate passive income. These investments have a proven track record of delivering solid returns over time. The share of personal income derived from dividends has steadily increased, making them an important earnings source. According to S&P Dow Jones Indices, dividend income grew from 2.68% in late 1980 to 7.88% by mid-2024, while interest income declined from 14.58% to 7.61% over the same period. The report also highlighted that since 1936, dividends have accounted for more than one-third of the total returns from the broader market, with capital gains making up the remaining two-thirds.
A study by WisdomTree underscores the potential of dividend-paying stocks to generate substantial income. The report suggests that focusing on dividends can significantly boost an investor’s earnings and improve the trailing 12-month dividend yield. This approach is especially beneficial during periods of low yields and heightened market volatility, where returns may be uncertain. Investing in dividend-weighted indexes can provide a reliable income stream in such conditions.
Both seasoned and everyday investors recognize the importance of incorporating dividend stocks into their portfolios to maintain a steady flow of income. In an interview with CNBC, Brian Bollinger, president of Simply Safe Dividends, emphasized the role of dividends in generating passive income. While many retirees rely on dividends as a key income source, Bollinger pointed out that anyone can build a portfolio centered on dividend-paying stocks. He also stressed the value of developing income streams that are independent of traditional employment wages. In view of this, we will take a look at some of the best stocks to buy for passive income.
Photo by Dan Dennis on Unsplash
Our Methodology:
For this list, we used a stock screener to identify dividend-paying companies with yields over 4.5% as of February 24. From this list, we selected companies known for strong dividend histories and consistent dividend payments. We then chose the top 10 stocks from this list based on the number of hedge funds holding stakes in them at the end of Q4 2024, according to Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 25
Dividend Yield as of February 24: 7.87%
British American Tobacco p.l.c. (NYSE:BTI) is a manufacturing company, based in London. It mainly specializes in cigarettes, tobacco, and various other nicotine products. The company saw accelerated growth in the second half of the year, fueled by innovations in its New Categories segment, strategic investments in US commercial initiatives, and a reversal of previous wholesaler inventory movements. Looking ahead to 2025, regulatory and fiscal challenges in Bangladesh and Australia are expected to impact its combustibles segment. However, the company remains confident in building on its progress as it moves from an investment phase to full-scale implementation. It remains focused on achieving its mid-term targets of 3-5% revenue growth and 4-6% adjusted profit from operations growth, on a constant currency basis, by 2026.
British American Tobacco p.l.c. (NYSE:BTI) regarded 2024 as a year focused on investment, with its performance aligning with expectations. Over the year, it advanced its transformation efforts, adding 3.6 million adult consumers to its smokeless product segment, bringing the total to 29.1 million. These products now account for 17.5% of total revenue, marking a 1.0 percentage point increase from fiscal 2023. In FY24, the company reported £25.8 billion in revenue, reflecting a 5.2% decline from the previous year. This drop was largely due to the sale of its operations in Russia and Belarus in September 2023, as well as unfavorable currency translation effects. In the past 12 months, the stock has surged by over 26%, which makes it one of the best stocks to invest in.
British American Tobacco p.l.c. (NYSE:BTI) currently pays a quarterly dividend of $0.7431 per share and has a dividend yield of 7.87%, as of February 24. The company has maintained strong cash flow generation, consistently achieving 100% operating cash conversion over the past five years, including a 101% conversion rate in 2024—exceeding its 90% target. The company generated £7.9 billion in free cash flow before dividends last year while operating cash flow surpassed £10 billion. Over the past five years, it has returned £28 billion to shareholders through a combination of steady dividend growth and a sustainable share repurchase program. In 2024, it launched £0.7 billion in share buybacks, with an additional £0.9 billion planned for 2025.
9. Enbridge Inc. (NYSE:ENB)
Number of Hedge Fund Holders: 27
Dividend Yield as of February 24: 6.4%
Enbridge Inc. (NYSE:ENB) is a Canadian multinational pipeline and energy company. This business maintains a high level of reliability, as its revenue is primarily derived from fees for utilizing its critical infrastructure. Unlike commodity prices, which can fluctuate significantly, the company’s financial results are more directly influenced by the demand for oil and natural gas—markets that generally remain stable even during price declines. Enbridge’s midstream operations contribute roughly 75% of its earnings before interest, taxes, depreciation, and amortization (EBITDA). In the past 12 months, the stock has surged by nearly 21%.
Enbridge Inc. (NYSE:ENB) posted adjusted earnings of $6.04 billion in 2024, up from $5.74 billion in the previous year. The company successfully finalized its $14 billion acquisition of three US-based natural gas utilities, expanding its footprint and unlocking new growth opportunities for 2025 and beyond. With this acquisition, Enbridge has become the largest natural gas utility operator in North America. Its transmission network now transports roughly 20% of the natural gas consumed in the US, positioning the company to capitalize on the rising demand for natural gas, particularly as tech firms develop gas-powered facilities to support electricity needs for AI-driven data centers.
Enbridge Inc. (NYSE:ENB) maintained a solid cash position throughout the year. It generated $12.6 billion in operating cash flow for the full year, compared to $14.2 billion in 2023. Additionally, its distributable cash flow (DCF) grew by 6% year-over-year, reaching $12.0 billion, up from $11.3 billion in the prior year. It currently offers a quarterly dividend of C$0.9425 per share and has a dividend yield of 6.4%, as of February 24. It is one of the best stocks for passive income as the company has raised its payouts for 30 straight years.
8. Franklin Resources, Inc. (NYSE:BEN)
Number of Hedge Fund Holders: 30
Dividend Yield as of February 24: 6.29%
Franklin Resources, Inc. (NYSE:BEN) is an American multinational asset management company that offers a wide range of related services and products to its consumers. In December 2024, the company announced a 3% increase in its quarterly dividend to $0.32 per share. This marked the company’s 49th consecutive year of dividend growth, which makes BEN one of the best stocks for passive income. The stock supports a dividend yield of 6.29%, as of February 24.
In fiscal Q1 2025, Franklin Resources, Inc. (NYSE:BEN) reported a 34% year-over-year increase in long-term inflows, excluding reinvested distributions. The company also posted $17 billion in net inflows across equity, multi-asset, and alternative investments for the quarter. However, long-term net outflows totaled $50 billion, excluding Western Asset Management, though it still recorded $18 billion in long-term net inflows across all asset classes.
Over the past 12 months, Franklin Resources, Inc. (NYSE:BEN) stock has declined by nearly 24%, reflecting its historically volatile performance. Despite this, Franklin Resources has undergone significant changes, including strategic acquisitions aimed at strengthening its offerings. One notable move was last year’s acquisition of volScout, an options-trading technology firm, which has helped expand its capabilities to better serve both retail and institutional investors.
7. Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 37
Dividend Yield as of February 24: 6.85%
Energy Transfer LP (NYSE:ET) ranks seventh on our list of the best stocks to buy for passive income. The Texas-based energy company is engaged in pipeline transportation and storage for natural gas, crude oil, and other refined products. In the past 12 months, the stock has surged by over 29%, gaining investor attention. The company has benefited from acquisitions, recently completed expansion projects, and supportive market conditions. In recent quarters, it completed three major acquisitions: Lotus Midstream in May 2023, Crestwood Equity Partners in November 2023, and WTG Midstream in July 2024. In addition, it formed a joint venture with its affiliated MLP, Sunoco LP, to integrate its crude oil and produced water-gathering operations in the Permian Basin.
In the fourth quarter of 2024, Energy Transfer LP (NYSE:ET) reported revenue of $5.27 billion, marking a 6.6% decline from the previous year. However, its adjusted EBITDA rose 8% year-over-year to $3.88 billion, up from $3.60 billion. Looking ahead, the company expects adjusted EBITDA for 2025 to range between $16.1 billion and $16.5 billion. In addition, it has allocated approximately $5.0 billion for growth capital expenditures and around $1.1 billion for maintenance capital expenditures in 2025.
Energy Transfer LP (NYSE:ET) maintained a solid cash position, reporting a distributable cash flow of $1.98 billion. The company recently raised its quarterly dividend by 0.8% to $0.325 per share in January, extending its streak of consecutive dividend increases to 13 years. The stock supports a dividend yield of 6.85%, as of February 24.
6. Edison International (NYSE:EIX)
Number of Hedge Fund Holders: 38
Dividend Yield as of February 24: 6.34%
Edison International (NYSE:EIX) is a public utility company, based in California. The company produces electricity from various sources, including natural gas, nuclear energy, and renewables. It is facing challenges this year due to lawsuits holding it accountable for wildfire damages. These ongoing legal battles create uncertainty and potential risk for investors. Since the beginning of 2025, the stock has fallen by nearly 35%.
Despite these hurdles, Edison International (NYSE:EIX) has continued to increase its dividend, supported by a solid cash position. At the end of the most recent quarter, it held around $200 million in cash and cash equivalents. Additionally, its operating cash flow grew to $3.8 billion in the first nine months of the year, up from $2.5 billion in the same period last year.
In December 2024, Edison International (NYSE:EIX) raised its quarterly dividend by 6.1% to $0.8275 per share. This latest increase extended the company’s dividend growth streak to 21 consecutive years, which makes it one of the best stocks to buy for passive income. As of February 24, the stock has a dividend yield of 6.34%.
At the end of Q4 2024, 38 hedge funds tracked by Insider Monkey held stakes in Edison International (NYSE:EIX), growing from 29 in the previous quarter. The overall value of these stakes is over $902 million. With over 5.3 million shares, Pzena Investment Management was the company’s leading stakeholder in Q4.
5. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 45
Dividend Yield as of February 24: 6.42%
Ford Motor Company (NYSE:F) is a Michigan-based company that is engaged in the manufacturing, distribution, and sale of automobiles. The US automaker recently concluded its 2024 fiscal year, with significant losses in its electric vehicle division offsetting much of the earnings from its traditional combustion engine sales. Furthermore, escalating trade tensions with Mexico and Canada have introduced uncertainty, as potential tariffs on imported goods and materials pose additional risks. The stock is down by nearly 22% in the past 12 months.
However, Ford Motor Company (NYSE:F) has been actively refining its operations to boost efficiency through strategic restructuring. The company has streamlined its international footprint by withdrawing from underperforming markets like Brazil and India while reducing its presence in Europe. This shift has allowed Ford to focus more on advancing its electrification efforts. In the fourth quarter of 2024, the automaker reported $48.2 billion in revenue, marking a 5% increase from the same period a year earlier.
Ford Motor Company (NYSE:F) maintained solid cash generation throughout 2024, reporting $15.4 billion in operating cash flow and $6.7 billion in free cash flow for the year. Looking ahead to 2025, the company anticipates adjusted EBIT between $7.0 billion and $8.5 billion, with projected adjusted free cash flow ranging from $3.5 billion to $4.5 billion. Capital expenditures are expected to be in the range of $8 billion to $9 billion. Currently, it offers a quarterly dividend of $0.15 per share and has a dividend yield of 6.42%, as recorded on February 24.
4. VICI Properties Inc. (NYSE:VICI)
Number of Hedge Fund Holders: 48
Dividend Yield as of February 24: 5.41%
VICI Properties Inc. (NYSE:VICI) is an American real estate investment trust company that mainly invests in casinos and entertainment properties across the US and Canada. The company recently announced its Q4 2024 earnings, with revenues amounting to $976 million, up 4.7% from the same period last year. Net income available to common stockholders declined by 17.8% year-over-year to $614.6 million, with earnings per share dropping 19.2% to $0.58. This decrease was primarily driven by changes in the CECL allowance for the quarter ending December 31, 2024. In addition, the company established a new partnership with Indigenous Gaming Partners (IGP) as part of IGP’s acquisition of PURE Canadian Gaming’s operating assets. The agreement also included an amendment to the existing master lease for these properties.
VICI Properties Inc. (NYSE:VICI) has attracted investor interest with its distinctive business model. While its heavy exposure to the gaming industry might appear risky, casinos have historically shown resilience during economic downturns. The company secures tenants through long-term leases, and the highly regulated nature of the gaming sector makes relocation challenging, adding an extra layer of stability. This approach has enabled VICI to maintain full occupancy since its IPO in 2018, even during disruptions like the COVID-19 pandemic, which impacted the travel, hospitality, and casino sectors. Moreover, many of its leases are linked to the consumer price index (CPI), allowing rental adjustments to keep pace with inflation.
VICI Properties Inc. (NYSE:VICI) ended 2024 with $524.6 million available in cash and cash equivalents. During the quarter, the company paid $456.7 million to shareholders through dividends. Moreover, it has raised its payouts every year since its IPO in 2018, which makes it one of the best stocks to buy for passive income. The company’s quarterly dividend comes in at $0.4325 per share and has a dividend yield of 5.41%, as of February 24.
3. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 58
Dividend Yield as of February 24: 5.65%
United Parcel Service, Inc. (NYSE:UPS) is an American shipping and supply chain management company, headquartered in Georgia. The company is focusing on growing its healthcare logistics services as part of its broader goal to become a global leader in the industry. In January 2025, it strengthened its capabilities by acquiring Frigo-Trans and its subsidiary BPL, reinforcing its capacity to provide advanced temperature-controlled logistics solutions, particularly across Europe.
In the fourth quarter of 2024, United Parcel Service, Inc. (NYSE:UPS) generated $25.3 billion in revenue, reflecting a 1.54% increase from the same period a year earlier. It has also reached a preliminary agreement with its largest customer to scale back volume by more than 50% by the second half of 2026. In addition, as of January 1, 2025, the company will take full control of its UPS SurePost product. In response to these shifts, it is restructuring its US network and implementing multi-year “efficiency reimagined” initiatives aimed at streamlining operations and achieving approximately $1.0 billion in cost savings through a comprehensive process overhaul.
United Parcel Service, Inc. (NYSE:UPS) recently increased its quarterly dividend by 0.6% in February to $1.64 per share, marking 23 consecutive years of dividend growth. This consistency places UPS among the best stocks to buy for passive income. As of February 24, the stock yields 5.65%. Beyond its steady dividend increases, the company remains attractive to income investors due to its strong cash flow. In fiscal 2024, UPS generated $10.1 billion in operating cash flow and $6.3 billion in free cash flow. Additionally, it returned $5.9 billion to shareholders through dividends and share buybacks.
2. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 74
Dividend Yield as of February 24: 6.26%
Verizon Communications Inc. (NYSE:VZ) ranks second on our list of the best stocks to buy for passive income. The American multinational telecommunications company delivered solid fourth-quarter results in 2024, reporting $35.7 billion in revenue—an increase of 1.6% compared to the same period last year. This growth was fueled by higher customer additions in both mobile wireless and internet services. In the mobile wireless segment, the company gained 568,000 net postpaid phone subscribers, up from 449,000 in the prior year quarter. Revenue from this segment rose 3.1% year-over-year to $20 billion, marking its 18th consecutive quarter of growth.
Verizon Communications Inc. (NYSE:VZ) has attracted investor interest with its strong cash flow and focus on innovation. In fiscal year 2024, the company reported $37 billion in operating cash flow, while free cash flow grew to $19.8 billion, up from $18.7 billion the previous year. Analysts remain positive about its outlook, particularly following its partnership with NVIDIA to develop an AI-powered enterprise solution that enhances AI applications on its secure 5G private networks through private Mobile Edge Computing. In addition, the company is advancing other AI-driven initiatives, such as network slicing and satellite connectivity, to diversify revenue streams and strengthen its market position.
Verizon Communications Inc. (NYSE:VZ) currently offers a quarterly dividend of $0.6775 per share and has a dividend yield of 6.26%, as of February 24. The company has been rewarding shareholders with growing dividends for the past 18 years.
1. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 92
Dividend Yield as of February 24: 6.45%
Pfizer Inc. (NYSE:PFE) is a New York-based pharmaceutical company that mainly manufactures, markets, and sells related products worldwide. The company achieved notable progress in commercial execution throughout 2024, with strong performance across its product portfolio. It generated $3.4 billion in revenue from its legacy Seagen portfolio, alongside solid growth from key products like Vyndaqel, Eliquis, Xtandi, and Nurtec across multiple categories.
In addition, Pfizer Inc. (NYSE:PFE) reported a 12% operational revenue increase from its non-COVID products for the year, reinforcing its focus on execution. The company successfully met its $4 billion net cost savings target through its ongoing cost realignment program and has now raised its savings goal to approximately $4.5 billion by the end of 2025. As part of its Manufacturing Optimization Program, Pfizer aims to achieve $1.5 billion in net cost savings by 2027, with initial savings anticipated in the second half of 2025. The company remains optimistic about restoring its pre-pandemic operating margins in the coming years.
Pfizer Inc. (NYSE:PFE) currently pays a quarterly dividend of $0.43 per share, following a 2.4% increase in December 2024. This marks its 15th consecutive year of dividend growth, which makes it one of the best stocks to buy for passive income. The stock supports a dividend yield of 6.45%, as of February 24.
Overall Pfizer Inc. (NYSE:PFE) ranks first on our list of the best stocks to buy for passive income. While we acknowledge the potential for PFE as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PFE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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