Make money while you sleep? It sounds like a sweet deal. The catch, of course, is that you have to spend some money buying dividend-paying stocks in order to benefit from the passive income those stocks consistently generate. The side benefit is that companies paying out dividends can be an excellent source of returns, while also providing stability to your portfolio.
Three dividend stocks to consider are Blackstone (BX -0.34%), Artisan Partners Asset Management (APAM -2.75%), and Federal Realty Investment Trust (FRT -0.99%). With an average yield of 4.94% between the three at the moment, a $10,121 investment split evenly between these three could net you $500 a year (before taxes). Let's take a closer look at these three dividend stocks.
1. Blackstone benefits from the growing popularity of alternative investments
Blackstone provides investments for its clients, including pension funds, institutional investors, and high-net-worth individuals.
It doesn't pay a fixed quarterly dividend. Instead, it pays out 100% of its distributed earnings through dividends and share repurchases. Because of this, the dividend can fluctuate annually depending on its performance. However, when you look out over the past decade, its dividend payout has grown at an eye-opening 20% annually.
The secret to Blackstone's success is its "alternative investment" options. Alternative investments are outside your stereotypical investments, like stocks, bonds, and cash. The alternative investment space has grown rapidly. According to data from Preqin, total assets under management (AUM) across all alternative asset classes grew 10.7% annually from 2015 through 2021. Don't expect growth to slow down anytime soon. In fact, Preqin expects alternative investment growth will accelerate to 11.7% annually through 2026.
For Blackstone, this is an excellent opportunity to grow its reach further. One growing trend is retail investors moving into alternative investments. Blackstone created its BREIT product, providing high-net-worth individuals with access to private investments, for just this reason.
While the firm has been in the news lately for limiting redemptions, its long-term growth story remains solid. It has excellent growth potential and $187 billion in "dry powder," or cash it can put to work across its various investments. With its 3.86% dividend yield and excellent growth prospects, Blackstone is a solid passive-income-producing stock to consider.
2. Artisan Partners is committed to returning most of its income to shareholders
Artisan Partners is a boutique asset manager. It is quite small compared to mega-asset managers like Vanguard and BlackRock. The company has around $127 billion in assets under management (AUM), while Vanguard and BlackRock have over $8 trillion each.
Artisan Partners uses its small size to take advantage of strategies those bigger players can't. Its asset managers have the agility and flexibility to pursue niche strategies that outperform the markets.
While the total size of its AUM has shrunk 27% from last year, most of this is due to declining asset prices. Net outflows accounted for 5% of this change; however, customers are mainly staying the course with Artisan Partners.
Looking over a longer time horizon, its results are impressive -- 24 out of 25 Artisan funds have beaten their benchmark since their creation. Artisan Partners pays a hefty dividend yield of 6.68%. This outsized payout is possible because management is committed to returning about 80% of its quarterly income to shareholders through dividends.
APAM Dividends Paid (TTM) data by YCharts
It's important to note that Artisan Partners' dividend fluctuates (sometimes dramatically) from year to year. For example, over the last three years, it's paid out dividends of $3.67, $4.23, and $2.78 per share. Despite this, Artisan Partners is a solid high-yield dividend stock. If you don't mind some of the volatility, it could be another excellent income stock as part of your diversified portfolio.
3. Federal Realty Investment Trust has a secret recipe for riding out tough times and growing its dividend
Federal Realty Investment Trust has raised its dividend annually for 55 consecutive years. It operates as a real estate investment trust (REIT) and is required to pay out 90% of its taxable income to shareholders in dividends.
Federal Realty acquires and develops retail and other mixed-use properties. Its secret sauce is that it is highly selective about where it will invest its money. The REIT invests in first-ring suburbs, which are communities close to city centers in metropolitan markets.
It chooses markets with high barriers to entry, high average household incomes, and dense populations. By focusing on these three traits, Federal Realty's business has more resilience than others in the space. That's because higher-income earners can absorb inflation's effects and ride out economic downturns better than others. Its portfolio is spread among numerous tenants, including TJ Maxx, Home Depot, CVS, and Kroger.
FRT Dividends Paid (TTM) data by YCharts
With its ever-growing payout and a dividend yield of 4.28%, Federal Realty is another solid dividend stock you can buy today.
Before buying these stocks, consider this
While these companies have excellent dividends, these payouts could fall on a down year. For this reason, your top priority as an investor should be to spread your risk around and diversify your holdings.
These three stocks could be great in addition to your other current holdings. So if you want to build passive income, have $10,121 to invest, and this move doesn't throw off the diversification of your portfolio, these three dividend stocks are excellent companies you can buy today.
