Everyone should love passive income and want to accumulate as much as possible. Getting money for doing nothing is why dividend stocks are popular and why holding such investments can yield significant returns.
Imagine investing $50,000 in a group of stocks or an exchange-traded fund that pays a 5% return each year. Even with no payout increases over a 30-year period, that would result in $75,000 in dividend income for your portfolio, effortlessly. And that doesn’t take into account the profits you could also accrue by owning those investments.
Two stocks that pay even more than 5% and are great options for you today include CareTrust REIT (CTRE 0.35%) Y Camping World Holdings (CWH -6.55%). Investing just $30,000 in these two stocks would be enough to earn at least $2,000 in passive income each year.
1. CareTrust — $10,000
CareTrust is a real estate investment trust (REIT) that pays a 5.2% yield today. Investing $10,000 in stocks would earn approximately $520 in annual dividends. That’s a great performance when you consider that the S&P 500 the average is only 1.7%; With that type of investment, you’d only be collecting $170 in annual dividends on an investment of the same size.
The beauty of CareTrust is that because it is a REIT, it must return at least 90% of its profits to investors. And since the company focuses on a fairly stable industry like health care (most of which is skilled nursing facilities), it’s not as risky as a REIT that owns residential property or invests in shopping malls where there can be a lot of more volatility.
And that consistency was evident in the company’s most recent earnings report. CareTrust reported earnings per share of $0.21 for the period ended June 30, which was only slightly less than the $0.22 it reported in the prior year period.
But the company evaluates its dividend based on normalized funds from operations (FFO), a metric used by REITs that excludes amortization and other non-cash expenses. Last quarter, CareTrust’s normalized FFO was $0.37, which is lower than its quarterly dividend of $0.275. Its payout ratio based on FFO was 74%, suggesting that the dividend is sustainable.
Year-to-date, CareTrust shares are down 6%, which is better than the S&P’s 14% drop. And while it may not outperform the market every year, health care stocks appear to be a safe option for investors who just want to build long-term passive income.
2. Camping World Holdings — $20,000
Camping World buys and sells recreational vehicles. It also sells a variety of camping supplies, including coolers, tents, generators, and other products. It has more than 185 locations in 42 states, giving it a wide reach to serve camping enthusiasts across the country. It is also a fantastic dividend stock.
At 8.1%, your current dividend yield is actually lower than it was just a few months ago because the stock has risen since then. Investing $20,000 in this stock would generate approximately $1,620 in annual dividend income for you. Add the $520 investment from CareTrust and you get $2,140 each year.
While the higher cost of new vehicles undermined Camping World’s gross margin in the second quarter, the company still reported diluted earnings per share of $2.01 for the period ended June 30. That’s almost enough in a quarter to cover how much Camping World pays dividends per share over the course of a year. Whole year — $2.50. If you maintained that level of profitability, your pay rate would be around 30% of net income. Camping World’s business is doing incredibly well, with the company reporting its best second-quarter numbers as sales topped $2.2 billion for the period (representing a 5.2% year-over-year growth rate).
Inflationary pressures in the economy could work in Camping World’s favor because as consumers tighten their budgets, camping can be a profitable option for people looking to vacation without spending excessive amounts on air travel and hotels. There is little concern about Camping World’s business at the moment, which is why it could be a high-dividend buy-and-hold stock.
David Jagielsky has positions in Camping World Holdings. The Motley Fool recommends Camping World Holdings and recommends the following options: short September 2022 $27 puts on Camping World Holdings. The Motley Fool has a disclosure policy.