Dividend growth investing is a popular strategy for investors looking to live off of the passive dividend income their portfolio generates. This is a great approach because it enables investors to psychologically tune out the volatility of the stock market and instead simply focus on their income stream.
One of the important considerations for investors who take this approach is building a portfolio that generates consistent monthly cash flow, as expenses are typically constant from month-to-month. This is not as easy as it sounds given that most dividend-paying stocks only pay them out on a quarterly basis.
As a result, if you do not deliberately select and weight these stocks, it is very possible that you could end up generating a very unbalanced cash flow stream from month to month.
Generating a sizable amount of reliable and growing monthly cash flow is one of the best things you can do for financial peace of mind and your quality of life. Instead of being emotionally tied to the daily swings of the market, you can kick back, relax and let the dividends flow into your bank account.
While it is prudent to build a more robustly diversified portfolio than just three stocks, the three discussed in this article are sure to give you a great start and will bring in attractive current cash flow each month of the year while also being highly likely to continue growing that monthly cash flow every year for the foreseeable future, even if you have to spend every penny of the dividends that you receive.
W.P. Carey (WPC)
W.P. Carey (NYSE:WPC) is a triple net lease real estate investment trust (REIT) that owns over 1,400 properties spread across North America and Europe. The majority of its properties are warehouse and industrial, but it also has considerable exposure to mission-critical retail, office and storage properties in its portfolio.
Its conservative business model and focus on industrial and warehouse real estate along with its immense property, tenant and geographic diversification have enabled it to generate very stable cash flows regardless of the macro conditions, including continuing to grow its dividend through both the Great Financial Crisis as well as the Covid-19 lockdowns. Furthermore, with the majority of its rent coming from leases that are linked to CPI, WPC has some of the best inflation protection in the triple net lease space.
Another reason why WPC is a great foundational piece to a passive income portfolio is that its balance sheet is quite strong with plenty of liquidity and a rock-solid investment-grade credit rating.
All of these strengths have enabled WPC to grow its dividend for 24 consecutive years, making it an extremely reliable dividend growth stock. When combined with its current 5.1% dividend yield, WPC is a great pick to begin building a portfolio to generate monthly cash flow, with its dividend paychecks typically arriving in January, April, July and October.
Enterprise Products Partners (EPD)
A great company to buy for lucrative, reliable and growing passive income in February, May, August and November is Enterprise Products Partners (NYSE:EPD). It is arguably the best-managed midstream infrastructure business and has an impressive long-term track record of growing its distribution for 24 consecutive years and generating significant total return outperformance as well. Furthermore, insiders are well-aligned with investors as they own about one-third of the partnership.
EPD’s cash-flow profile is very stable, regardless of macroeconomic conditions. It enjoys lengthy and commodity-price-resistant contracts on most of its assets and has several high-quality counterparties backing those contracts. It also has a fully integrated, well-diversified and strategically located asset portfolio. Management has a strong track record of consistently generating double-digit returns on invested capital.
Another highly attractive trait of EPD is that it has a sector-leading BBB+ credit rating, with a very conservative 3.1x leverage ratio, $3.3 billion in liquidity and a weighted average debt term to maturity of 20 years.
With a 1.75x distribution coverage ratio expected for 2023 alongside a sky-high 7.7% current distribution yield, EPD is both a very safe and very attractive passive income machine.
Brookfield Asset Management (BAM)
For cash flow in the remaining months of the year (March, June, September and December), we like Brookfield Asset Management (NYSE:BAM) as an exciting dividend growth opportunity. It is a pureplay alternative asset management stock with over $750 billion in assets under management and a very impressive track record of generating growth and superior total returns for shareholders.
It has a presence in over 30 countries across five continents and invests its clients’ capital across numerous asset classes (including diversified global portfolios of real estate, infrastructure, renewable energy generation assets, industrials, investment products, insurance and reinsurance, and private credit). This, combined with its immense capital scale, provide it with superior deal flow. It generates profits from asset management fees along with carried interest that it generates from meeting certain performance thresholds for its clients.
BAM also benefits from an attractive cost of capital, with an A- credit rating, no debt on BAM’s balance sheet and $2.8 billion in cash and financial assets. Furthermore, its asset-light business model means that it is expected to be gushing free cash flow, with $2 billion in current annualized free cash flow.
Management recently guided for a 15-20% compound annual growth rate (CAGR) for both assets under management and fee-related earnings in the coming years. Even more exciting is the fact that BAM expects its dividend per share to grow at a similar pace over that span. When combined with the current 4% dividend yield, this makes BAM a very attractive combination of solid current yield and very impressive dividend growth potential.
On the date of publication, Bob Ciura did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.