Key Points
My top financial goal is to become financially independent. I’ll reach financial freedom once my passive income can cover my basic living expenses. That’s leading me to buy stocks that pay sustainable dividends that should continue growing.
Two of my top passive income investments are Brookfield Renewable (NYSE: BEPC)(NYSE: BEP) and Realty Income (NYSE: O). I plan to hold both for the next decade. Here’s why.
High-powered dividend growth ahead
Brookfield Renewable checks all the boxes for what I seek in a core passive income stock investment:
- A high current yield: At over 4.5%, it’s well above the S&P 500‘s roughly 1% yield.
- A strong dividend growth track record: Brookfield Renewable has increased its payout by at least 5% annually since 2011.
- A fortress financial profile: Brookfield has stable cash flows (90% contracted for an average of 12 years), a comfortable dividend payout ratio (around 75% of its funds from operations (FFO) over the last 12 months), and a strong investment-grade balance sheet (BBB+).
- Visible growth profile: It expects to grow its FFO per share by more than 10% annually through at least 2031, which should support dividend growth of 5% to 9% annually.
While Brookfield’s current yield is very attractive, the company’s growth potential is why I plan to hold it for the next decade. It has multiple growth drivers, including inflation-linked contractual rate increases, margin expansion as existing contracts expire and renew at higher rates, development projects, and acquisitions.
Brookfield has a large pipeline of renewable energy development projects, which should keep it busy for the next decade. For example, it’s building over 10.5 gigawatts (GW) of power generation capacity for Microsoft alone between 2026 and 2030. For perspective, Brookfield’s current operating capacity is around 47 GW.
The company’s high-powered growth engine should enable it to generate strong total returns. With a 4.5%+ yield and a more than 10% annual earnings growth rate, Brookfield could deliver total annual returns in the mid-teens. So, it can grow my passive income and my wealth in the coming decade.
A dependable passive income producer
Realty Income is an ideal passive income investment because it pays a monthly dividend. The real estate investment trust (REIT) also has everything I look for in a core passive income investment:
- Yield: Nearly 5%.
- Dividend growth: Every year since its IPO in 1994. It has raised its payment 135 times, including for the past 115 consecutive quarters, growing it at a 4.1% compound annual rate.
- Financial profile: 100% of its cash flow secured by long-term, triple-net leases, a 75% adjusted FFO payout ratio, and an A3/A- credit rating.
- Growth potential: A $14 trillion total addressable market opportunity to invest in net-lease real estate across the U.S. and Europe.
Realty Income has taken several steps over the past year to enhance its ability to continue growing its portfolio and dividend in the coming decade. The REIT is tapping into the massive private market by forming several private capital investment vehicles and strategic partnerships. Over the past year, it launched its U.S. Core Plus Fund and joint ventures with Apollo, GIC, and Cloud Capital. This strategy will enhance returns, provide low-cost equity capital to fund new investments, and create new growth opportunities. For example, one aspect of its strategic partnership with GIC is a construction financing and take-out purchase agreement for a $200 million build-to-suit industrial portfolio in Mexico, its first investment in that country. Meanwhile, its programmatic joint venture with Cloud Capital will enable the REIT to invest in high-quality data centers in the U.S. and Europe.
Anchor income stocks
Brookfield Renewable and Realty Income are two of my foundational income holdings. They pay high-yielding dividends backed by strong financial profiles, providing me with income I can bank on. Meanwhile, they have strong growth track records, which should continue in the coming decade. That’s why I plan to hold both for the next 10 years and will likely continue adding to my positions to further grow my passive income.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, and Realty Income. The Motley Fool has positions in and recommends Microsoft and Realty Income. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
