2 Dividend Stocks with Huge Passive Income Potential

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Rampant inflation may be depressing you right now, but there is something you can do now that will provide you with an income stream that outpaces inflation. Buying dividend-paying stocks that can grow their payouts at a satisfying rate is a proven way to prepare for retirement, and it’s never too early to start.

These two companies have long shared their profits with their shareholders in the form of dividends. Even better, there’s a good chance they could keep earning and increasing their payouts for decades.

Johnson & Johnson

The COVID-19 vaccine Johnson & Johnson (JNJ -2.84%) under license from the University of Oxford did not work as well as vaccines from Pfizer Where Modern, but that’s no reason to avoid stock. Investors looking for passive income love this company because of its well-diversified range of healthcare-related businesses. This conglomerate also generates reliable cash flow which it shares with investors in the form of a dividend which currently offers a yield of 2.5%.

J&J’s cash flow is so reliable that the company has been able to increase its dividend payout for 60 consecutive years. The latest 6.6% uptick isn’t a big deal on its own, but over time, those single-digit percentage payout increases add up. Since 2010, this company’s payout has more than doubled.

This is a particularly good time to buy J&J as shareholders will get a two-for-one deal. In 2023, the company will transform its consumer goods segment into a separate business. Sales of baby dressings and shampoos have stagnated somewhat in recent years. Separating the consumer business from the fast-growing medical technology and pharmaceutical segments of the business could unlock significant long-term value.

When adjusted for the sharply rising value of the U.S. dollar, first-quarter medical device sales were up 8.5% year-over-year, while pharmaceuticals sales jumped 9.3%. Over the past 12 months, the company generated a whopping $19.7 billion in free cash flow. Meeting its dividend commitments has eaten up only 56% of free cash flow over the past year. This gives the company enough leeway to continue to increase its payments at a rate above inflation in the years to come.

Medical Properties Trust

Earlier this year, Medical Properties Trust (MPW -0.95%) made its ninth consecutive annual dividend increase. This real estate investment trust (REIT) does not grow its payouts as quickly or as reliably as Johnson & Johnson. If you don’t have decades to wait for the incremental payout increases to accumulate, this stock’s 7.4% yield at recent prices can immediately energize your retirement portfolio.

Medical Properties Trust buys hospitals and other medical buildings which it leases to operators in return for highly predictable rent payments. Investors can rely on the company to direct its cash flow to their brokerage accounts, as REITs can avoid paying income taxes as long as they distribute at least 90% of profits to their shareholders.

The biggest threat to Medical Properties Trust, and REITs in general, is non-payment of rent due to bankruptcy. One of this company’s operators, Adeptus Health, filed for bankruptcy in early 2021, but this REIT has weathered the potential disaster. In fact, Medical Properties Trust has already leased 37 properties formerly occupied by Adeptus Health to new operators. In addition, the market value of the properties for which the company had initially invested $415 million increased by 17% to reach $484 million.

Medical Properties Trust expects adjusted funds from operations (FFO) to reach around $1.80 per share this year. With a dividend currently set at just $1.16 per year, this REIT will have no trouble reaching and increasing its quarterly payout for the foreseeable future.

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