Financial freedom is a beautiful goal and the reason many people invest. Being able to work because you want to, not because you have to, is the ultimate flex. You can take different roads and get to the same place, but dividend stocks are an excellent path for this journey.
Dividend stocks are shares of companies that share their profits with you. Own enough of them, and the dividends might even cover your living expenses without you having to sell shares to raise money.
Consider adding these five fantastic stocks to your portfolio if you want dividend-driven financial freedom.
They have the goods to pay you ever-increasing dividends for the foreseeable future.
1. A real estate stock yielding 5.8%
Realty Income (O -1.19%) is a real estate investment trust (REIT): a company that leases real estate it owns and pays at least 90% of its taxable income to shareholders as dividends. A REIT allows investors to benefit from real estate profits without owning properties.
Realty Income focuses on single-tenant retail properties, including grocery stores, convenience stores, dollar stores, restaurants, and more. These are recession-proof businesses, which means they can reliably pay their rent.
The company uses net leases, which obligate the tenant to pay taxes, insurance, and maintenance. It makes Realty Income's business more dependable because there isn't much to disrupt its revenue streams.
Realty Income has paid and raised its dividend for 31 consecutive years, and its 71% dividend payout ratio leaves room for plenty more increases.
2. A dependable 9.5% superyield
Altria Group (MO 2.15%) sells tobacco products, primarily Marlboro cigarettes, in the United States. It also sells cigars, oral tobacco, and smokeless nicotine products like On oral pouches. Smoking rates in America have declined for decades, but Altria uses its pricing power to offset declining volumes with higher prices. The company is a Dividend King with 54 consecutive years of increases.
A high dividend yield can be a red flag. However, Altria looks like an exception to the rule. Dependable cash flows, a manageable 80% payout ratio, and a strong balance sheet should allow management to keep tacking on small increases. The company must slowly transition away from cigarettes as a core business, but there is time for that to happen over the coming years. Until then, keep banking that humungous dividend.
3. Warren Buffett's largest holding
Apple (AAPL 1.09%) is more than a household name for its iOS devices: It's the largest investment in Warren Buffett's holding company, Berkshire Hathaway, by a country mile. Buffett admires the company for its strong loyalty from consumers who religiously buy and upgrade their iPhones, smartwatches, and other personal electronics. Apple is so big it generates a remarkable $106 billion in free cash flow annually. Not revenue, free cash flow.
That sets up investors for a ton of dividend growth. Apple has raised its dividend yearly since it began paying shareholders 11 years ago. The dividend payout ratio is still tiny at just 14%, so decades of dividend increases are likely ahead. That should be music to the ears of any long-term investor.
4. A long-term wealth compounder
Home Depot (HD -0.98%) is one of the most successful stocks ever. Shares have returned more than 3,000,000% since its initial public offering (IPO), creating life-changing returns for long-term investors. How? Home Depot became the largest home improvement retailer in North America. Homes are part of people's identity. People make upgrades and repairs, and new homes are constantly being built.
The company is also a stellar dividend stock. The company has raised its payout for 14 consecutive years after freezing it during the Great Recession. Today, the payout ratio is manageable at 46% of cash flow, so investors should look for raises to continue at a healthy pace. The average increase over the past five years is an impressive 15%.
5. A legendary cult coffee brand
Starbucks (SBUX 0.06%) has a grip on consumers that few food and beverage companies do. I'm sure you, or someone you know, loves their Starbucks. The company's loyalty program has a whopping 34.3 million active 90-day users in America alone.
Starbucks has expanded from the northwestern United States to become a global juggernaut with 38,587 open stores worldwide. Starbucks is highly profitable and returns a lot of its profits to investors. The company has paid and raised its dividend for 13 consecutive years.
It also repurchases a ton of stock to help boost earnings growth. The company's outstanding shares have decreased 25% over the past decade. Juggling both has made Starbucks a stock that can deliver income at its current 2.4% yield and total returns. The payout ratio is solid at 56%, so investors can continue to buy and hold confidently and expect more of the same.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Home Depot, Realty Income, and Starbucks. The Motley Fool has a disclosure policy.
