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Want to Make $10,000 in Passive Income This Year? Invest $115,000 in These 3 Safe High-Yield Dividend Stocks.

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The idea of passive income sounds pretty good, doesn’t it? You exert little (if any) effort while making money.

Of course, you’ll need upfront money to make money. There’s no such thing as a free lunch. However, once you accumulate enough cash, generating passive income can be relatively easy.

Want to make $10,000 in passive income this year? Invest roughly $115,000 in these three safe high-yield dividend stocks.

1. Ares Capital

I think Ares Capital (NASDAQ: ARCC) is a great stock to buy with the first one-third of the initial $115,000. The company’s dividend yield of 9.49% would enable you to make well nearly $3,638 in passive income this year.

Ares Capital offers such a high yield primarily because of its business structure. As a business development company (BDC), it must return at least 90% of its income to shareholders in the form of dividends to be exempt from federal taxes.

Of course, the company must generate plenty of income in the first place to have enough to pay dividends. That’s not a problem for Ares Capital. It generated net income of over $1.5 billion last year based on generally accepted accounting principles (GAAP), more than doubling its 2022 total.

Ares Capital has paid a dividend every quarter for 14 years with no cuts. The BDC’s highly diversified portfolio and strategy of focusing on the upper end of the middle market lowers its risk level. CEO Kipp deVeer also recently confirmed that increasing numbers of large, high-quality companies are coming to Ares Capital for financing because of “the stability that we provide through market cycles.”

2. Energy Transfer

Investing another $38,333 (one-third of the initial $115,000) in Energy Transfer (NYSE: ET) could also enable you to rake in a boatload of passive income. The midstream energy provider pays a distribution that yields 8.93%. That’s enough to make you over $3,420 this year.

Those distributions should be highly dependable. Energy Transfer’s earnings jumped 15% year over year in the fourth quarter of 2023 to $1.3 billion. The company had around $970 million in cash flow left over in Q4 after paying its distributions.

I like that Energy Transfer is investing in growth. The company closed on its acquisition of Crestwood Equity Partners in November 2023. Thanks to this deal, Energy Transfer now operates more than 125,000 miles of pipeline in the U.S.

I also like that the company’s management has plenty of skin in the game. Roughly 11% of Energy Transfer’s units are owned by executives and independent board members. That’s more than five times greater insider ownership than its peers.

3. Enterprise Products Partners

There’s another ultra-high-yield midstream energy stock that can make you a lot of money. Enterprise Products Partners (NYSE: EPD) boasts a distribution yield of 7.72%. Investing the final one-third of the initial $115,000 would generate close to $2,960 in passive income in 2024.

Enterprise Products Partners has a lot in common with Energy Transfer. Both companies operate extensive pipeline networks. Both also own other midstream energy assets, including storage facilities and terminals.

Although Enterprise’s distribution yield is a little lower than the yields of Ares Capital and Energy Transfer, the company has a more impressive distribution track record. Enterprise has increased its distribution for an impressive 25 consecutive years with a compound annual growth rate of close to 7%.

The midstream energy leader also has a history of holding up well during tumultuous times. Enterprise Products Partners’ cash flow per unit rose during the financial crisis of 2007 and 2008. The company’s cash flow per unit declined only slightly during the oil price collapse of 2014 through 2017 and the COVID-19 pandemic in 2020 and 2021.

Important considerations

If you’ve kept count, $115,000 invested in Ares Capital, Energy Transfer, and Enterprise Products Partners could produce passive income totaling a little over $10,000. There are a couple of important considerations to keep in mind, though.

It’s possible that one or more of these companies could cut their dividend distributions. I think this is highly unlikely, however, because of their strong financial positions.

A more plausible scenario is that the stocks decline enough to offset any passive income obtained from their dividends. This could be more likely to happen if there are major macroeconomic headwinds or geopolitical uncertainty.

As things stand now, though, I think that Ares Capital, Energy Transfer, and Enterprise Products Partners are positioned to deliver positive gains for investors this year. And they should each generate significant passive income.

Should you invest $1,000 in Enterprise Products Partners right now?

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Keith Speights has positions in Ares Capital and Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

Want to Make $10,000 in Passive Income This Year? Invest $115,000 in These 3 Safe High-Yield Dividend Stocks. was originally published by The Motley Fool

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