There are many ways to make money without actively working, like owning bonds or renting out property. But one simple way is to invest in stocks that pay dividends. These stocks give you money regularly without you having to sell anything, and they let you be part of the stock market.
It's great to find a company whose value keeps growing and also gives you money regularly. Microsoft and Air Products and Chemicals are examples of such companies.
Another option is the J.P. Morgan Equity Premium Income ETF, which pays a high dividend of 7.6%. It includes big companies like Amazon and ExxonMobil. Here's why buying Microsoft, Air Products, and the J.P. Morgan ETF is a good idea.
Microsoft's Dividend
Daniel Foelber explains that Microsoft's low dividend yield of 0.7% isn't because they aren't increasing dividends but because their stock price has been soaring. In the last five years, their stock has gone up by 223%, while the dividend has increased by 63%. Looking back over the past decade, Microsoft's stock has skyrocketed by 906%, and the dividend has gone up by 168%.
Even though the dividend yield might seem low, Microsoft's strong performance makes it worthwhile for investors. Microsoft can easily afford to raise its dividend each year because its earnings are growing faster than the dividend raises. This is why the payout ratio, which measures the proportion of earnings paid out as dividends, is at a 10-year low of less than 25%.
A payout ratio below 75% is considered good for a reliable company, and below 50% is even better, especially for companies with fluctuating earnings. Microsoft's low payout ratio is partly due to the fact that it rewards shareholders through both dividends and buying back its own stock. Despite spending a lot on stock-based compensation, Microsoft has managed to decrease its share count through buybacks. This helps prevent dilution of existing shares.
If Microsoft continues to outperform the market, the dividend will just be an extra bonus. But if Microsoft's performance slows down, the dividend yield could increase significantly because of the strong dividend growth and the potential for the payout ratio to increase if necessary. In any case, Microsoft is well-positioned to reward its shareholders.
Air Products: A Dividend Stalwart for the Long Haul
Scott Levine suggests that while predicting the future of stocks is tricky, looking at their past performance can give valuable insights. Air Products, with its 80-year history as a top provider of industrial gases and equipment across various industries like energy and healthcare, stands out as a promising option for investors seeking long-term passive income.
Currently offering a forward dividend yield of 2.9%, Air Products' stock presents an attractive opportunity, especially considering its consistent dividend growth over 42 years. From 2014 to 2024, the company increased its dividend at a compound annual growth rate of 9%, maintaining an average payout ratio of 62.3% over the past decade.
Due to its diverse industry presence, a downturn in any single sector is unlikely to significantly impact Air Products' financials, safeguarding its dividend. Moreover, with a vast infrastructure comprising 750+ production facilities and 1,800+ miles of industrial gas pipeline, the company enjoys a strong competitive advantage that's difficult for new players to disrupt. Its leading position as a hydrogen supplier adds further appeal.
Trading at approximately 15.2 times operating cash flow, below its five-year average of 17.4, Air Products' stock appears undervalued, making it an enticing opportunity for investors looking to enter the industrial gas sector.
This ETF's 7.6% yield is attractive for income-seeking investors
If you're seeking a monthly income ETF that blends equities exposure with a strategy designed for relatively modest returns compared to the S&P 500 index, the J.P. Morgan Equity Premium Income ETF might fit the bill. Here's a quick rundown of its key features:
The ETF primarily invests 80% of its assets in actively managed U.S. equities and up to 20% in selling call options on the S&P 500 index.
Selling call options means the ETF earns premiums if the index doesn't surpass a predetermined price by a certain date.
In a nutshell:
- When the S&P 500 spikes, the ETF may lose on call options but gain from its equity holdings.
- If the S&P 500 drops, the ETF could lose on equities but earn from collecting premiums.
- During low-volatility periods, the ETF typically earns from premiums and might break even or gain/lose slightly on equities.
Since its inception in 2020, the ETF has delivered an impressive total return of 59.2%, with a maximum monthly drawdown of 6.4% in September 2020. Overall, it offers a solid track record and could appeal to investors seeking regular passive income.