There are plenty of ways to generate passive income, from risk-free assets to bonds to income from rental properties. But one of the simplest and most effective means of generating income is to invest in dividend stocks, while provide passive income without the need to sell an asset, while also allowing you to participate in the stock market.
Finding a company that can grow in value while distributing dividend payments is a dream come true for long-term investors. And that’s exactly what Microsoft (NASDAQ: MSFT) and Air Products and Chemicals (NYSE: APD) are.
Meanwhile, the J.P. Morgan Equity Premium Income ETF (NYSEMKT: JEPI) yields a whopping 7.6% and includes exposure to top companies from Amazon to ExxonMobil. Here’s what makes Microsoft, Air Products, and the J.P. Morgan Equity Premium Income ETF worth buying now.
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Microsoft’s dividend is one part of an impeccable investment thesis
Daniel Foelber (Microsoft): Microsoft’s mere 0.7% dividend yield results from its outperforming stock price, not a lack of raises. Over the last five years, the stock is up 223%, but the dividend has increased by 63%. Zoom out over the last decade, and Microsoft is up a jaw-dropping 906%, while the dividend is up 168%.
Given the stock’s strong performance, Microsoft investors surely don’t mind the low yield. But investors who don’t own Microsoft and are considering buying the stock may wonder why the 0.7% yield is worth it, let alone grounds for a lifetime of passive income.
The reason is that Microsoft can easily afford to make sizable increases to its dividend every year. Earnings have grown at a faster rate than dividend raises, which is why the payout ratio is now at a 10-year low of less than 25%.
MSFT Payout Ratio Chart
A payout ratio under 75% is good for a reliable company, but below 50% is even better if a company has cyclical earnings. Part of the reason for Microsoft’s low payout ratio is that it rewards its shareholders with stock repurchases and dividends. Microsoft has reduced its share count despite its sizable stock-based compensation expense….
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