Everyone should love passive income and want to accumulate as much of it as possible. Getting money for doing nothing is why dividend stocks are popular and why holding these types of investments can result in significant returns.
Imagine investing $50,000 in a group of stocks or an exchange-traded fund that returns 5% each year. Even without any payout increases over a 30-year period, that would translate to $75,000 in dividend income for your portfolio, with no effort required. And that doesn’t take into account any gains you might also accrue by holding these investments.
Two stocks that are still yielding over 5% and are great options for you today include CareTrust REITs (CTRE -0.05%) and Camping World Holdings (CWH -6.62%). Investing just $30,000 in these two stocks would be enough to earn you at least $2,000 in passive income each year.
1. CareTrust — $10,000
CareTrust is a real estate investment trust (REIT) that today pays a yield of 5.2%. Investing $10,000 in the stock would generate around $520 in annual dividends. This is an excellent return considering that the S&P500 the average is only 1.7% – with this type of investment, you would only receive $170 in annual dividends on an investment of the same size.
What’s attractive about CareTrust is that because it’s a REIT, it must return at least 90% of its income to investors. And since the company is focused on a fairly stable industry like healthcare (most of which is skilled nursing facilities), it’s not as risky as a REIT that owns residential properties or invests in shopping malls where volatility can be much higher.
And that consistency was evident in the company’s latest earnings report. CareTrust reported earnings per share of $0.21 for the period ended June 30, which was only slightly lower than the $0.22 it had posted in the year-ago period.
But the company values its dividend based on normalized funds from operations (FFO), a measure 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 FFO-based payout ratio was 74%, suggesting the dividend is sustainable.
Year-to-date, CareTrust’s stock is down 6%, better than the S&P’s 14% decline. And while it doesn’t beat the market every year, the healthcare stock seems like a safe option for investors who just want to accumulate long-term passive income.
2. Camping World Assets — $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 over 185 locations in 42 states, giving it a wide reach to serve camping enthusiasts across the country. This also makes for a fantastic dividend stock.
At 8.1%, its dividend yield is now lower than a few months ago, as the stock has since recovered. Investing $20,000 in these stocks would generate approximately $1,620 in annual dividend income for you. Add the $520 CareTrust investment and you’ll collect $2,140 each year.
While the higher cost of new vehicles reduced 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 one quarter to cover how much Camping World pays out in dividends per share over a full year — $2.50. If it were to maintain this level of profitability, its payout ratio would be approximately 30% of net income. Camping World’s business is doing incredibly well, with the company reporting its best second quarter numbers ever, with sales exceeding $2.2 billion for the period (representing a growth rate of 5.2% d one year to the next).
Inflationary pressures in the economy could work in Camping World’s favor because as consumers tighten their budgets, camping can be a cost-effective option for people who want a vacation without having to spend excessive amounts on air travel. and in hotels. There is little concern about Camping World’s business at present, which is why it could be a prime dividend-paying stock to buy and hold.
David Jagelsky holds 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.