Seeking Perpetual Passive Income? Consider Purchasing These Two Stocks Instantly and Maintaining Ownership Indefinitely.
A high return alone isn't always a positive sign for an income investment. In fact, a high return often indicates that Wall Street has concerns about a company's future. Therefore, investors seeking long-term, passive income should look beyond just dividend yield.
At the moment, Realty Income (-1.99%) and Toronto-Dominion Bank (-0.48%) are both offering appealing yields. Let's examine the companies behind their above-average returns.
Realty Income is a reliable turtle
When it comes to dividend stocks, Realty Income, a real estate investment trust (REIT), is about as exciting as watching paint dry. But if you're searching for a company to hold for decades, its impressive 5.5% dividend yield makes it an attractive option. This yield is well above the REIT industry average of roughly 3.9%, as represented by the Vanguard Real Estate Index ETF.
Realty Income has boosted its dividend for 30 consecutive years and boasts an investment-grade-rated balance sheet. It's the largest net lease REIT in the market, and one of the largest REITs overall.
The REIT owns an impressively diverse portfolio, comprising around 15,400 properties spread across North America and Europe. Although retail accounts for approximately 73% of its rent income, it also has exposure to industrial assets (17%) and unique properties (10%) in the "other" category, such as vineyards and casinos.
Why is the yield so high? Realty Income's growth is unlikely to be meteoric, with low- to mid-single-digit percentage dividend growth being the most you can expect. However, if the REIT can maintain dividend growth in the 4% range over time, the return will still be appealing, given the dividend yield. (Add the two and you get an annual return of about 9.5%.) And 4% dividend growth remains higher than the historical growth rate of inflation, which is around 3%, ensuring that the purchasing power of the dividend increases over time.
Despite the lack of excitement, Realty Income is a reliable choice that you may grow to appreciate.
Toronto-Dominion Bank is a smart acquisition
Toronto-Dominion Bank, more commonly known as TD Bank, boasts an attractive yield of around 5.2%. This yield beats the 2.4% yield you'd receive from the average bank, as represented by the SPDR S&P Bank ETF. There are plenty of reasons to like TD Bank.
The bank, which is the second-largest in Canada and ranks among the top 10 banks in North America, boasts an investment-grade-rated balance sheet. It has a highly diversified business, encompassing consumer banking, corporate banking, insurance, and investment banking. TD Bank has also maintained a continuous dividend payment since 1857, making it a trustworthy option for income investors.
Currently, TD Bank's yield is approaching levels last seen more than 30 years ago. The yield was higher only during the Great Recession and the initial stages of the coronavirus pandemic.
The reason for this is that TD Bank faces scrutiny from U.S. banking regulators due to its failure to prevent its U.S. banking system from being used for money laundering. This has led to a fine, additional costs to upgrade internal controls, and an asset cap.
The fine and internal control issues have largely been addressed, although the asset cap will remain until regulators trust the bank enough to allow it to expand its U.S. business again. This could slow TD Bank's growth temporarily, but it isn't on the brink of collapse.
If you're willing to accept a yield that's more than twice the average while you wait for the bank to regain favor with U.S. regulators, TD Bank could be an excellent addition to your portfolio.
Consider more than just yield
Don't simply seek high-yield stocks if you're aiming for a dividend that will be sustainable over the long term. Look for stocks like Realty Income and TD Bank that offer high yields backed by strong businesses. This can come in the form of a stalwart industry leader, such as Realty Income, or a solid company that has temporarily faced challenges, like TD Bank.
Take a closer look at these two outsized yields. It's likely that at least one will find its way into your portfolio, particularly if your investment horizon stretches out to infinity.
After recognizing that a high return alone may not be positive for income investments due to potential Wall Street concerns, it's worth considering investing in companies like Realty Income and Toronto-Dominion Bank, which currently offer appealing yields of 5.5% and 5.2% respectively. These yields outperform their respective REIT and bank industry averages, making them attractive options for long-term, passive income seekers.
