If you have $10,000 that you won’t need to spend anytime soon, there are ways to derive passive income from that money. Among the easiest strategies is to buy and hold a handful of dividend-paying stocks.
Stocks with good yields can be the crown jewels of your portfolio, but you need to have a plan in place. Instead of putting all of eggs in one basket, it would make more sense to set aside $2,500 for four different dividend stocks.
That’s an equal allocation into four high-quality companies that also happen to reward the shareholders with dividend payments. So you can get started today, here is the first passive income pick I’ve chosen for you.
Energy Transfer (ET)
To begin with, your first $2,500 out of $10,000 can be converted into shares of Energy Transfer (NYSE:ET) stock. You may or may not have heard of this company, but Energy Transfer is actually an important U.S. midstream oil and natural gas business.
Sure, America could eventually switch to cleaner energy sources. For the foreseeable future, however, there will be a need for oil and gas pipelines, and Energy Transfer is a premier provider and servicer of these pipelines.
Owning an energy stock might sound excessively risky. Yet, I invite you to check out the five-year price chart of ET stock. The share price is up 130%, which suggests (but doesn’t guarantee) that Energy Transfer’s investors will continue to make money.
Plus, here’s the kicker. Currently, ET stock features a tremendous 7.13% forward annual dividend yield. That’s why you’ll find a favorable reward-to-risk profile with Energy Transfer stock right now.
Amgen (AMGN)
I’m trying to keep your money reasonably safe while achieving strong growth potential. That’s why my next pick for a $2,500 investment is Amgen (NASDAQ:AMGN), a well-established pharmaceutical giant.
PepsiCo (PEP)
This one fits right into the category of “consumer defensive,” as PepsiCo (NASDAQ:PEP) is an undeniable competitor in the beverage and snack food industry. You can significantly reduce the volatility of your $10,000 portfolio with an ultra-safe investment in PEP stock shares.
Here’s a noteworthy fact: PepsiCo stock has a five-year monthly beta of 0.42. This means PEP stock has historically only moved 42% as fast, in both directions, as the S&P 500.
Now, we’re forming a real strategy for your $10,000 account. Energy Transfer stock might move fast sometimes since it’s in the energy sector, but PepsiCo stock will be a safe anchor to keep your portfolio in a state of balance.
Don’t get the wrong idea, though. PepsiCo stock might be considered a safety net, and its share price gained a modest 30% over the past five years.
On the other hand, it’s still a growth asset in a different way. That’s because PepsiCo offers a hefty 3.36% dividend yield — a compelling reason to own $2,500 worth of the company’s shares.
Cisco Systems (CSCO)
If you’re going to invest a total of $10,000, it makes sense to own at least one technology stock since it’s such an important sector in the 2020s. Consequently, you can collect decent dividends with a famous communications/networking products provider, Cisco Systems (NASDAQ:CSCO).
The harsh truth is that large-cap technology stocks typically pay meager dividends, and some don’t pay any dividends at all. Cisco breaks the mold, though, as CSCO stock provides a comparatively high 2.12% annual yield.
Furthermore, while some tech stocks are volatile, Cisco stock’s five-year monthly beta is 0.87. Hence, you might actually expect CSCO stock to move slightly slower than the S&P 500.
In the past five years, Cisco stock’s share price has advanced nearly 75%, and that doesn’t include the consistent quarterly dividend payments. All in all, CSCO stock is a great place to park the final $2,500 of your total $10,000 dividend-enhanced investment.