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2 Dividend Stocks With Huge Passive Income Potential

Runaway inflation may have you feeling down at the moment, but there's something you can do now that will provide you with an income stream that outpaces inflation. Buying dividend-paying stocks that can raise their payouts at a satisfactory rate is a tried and true way to prepare for your retirement, and it's never too early to start.

Both of these businesses have a long history of sharing their profits with their shareholders in the form of dividends. Best of all, there's a good chance that they can keep making and raising their payouts for decades to come.

Johnson & Johnson

The COVID-19 vaccine Johnson & Johnson (NYSE: JNJ) licensed from Oxford University didn't perform as well as vaccines from Pfizer or Moderna, but this isn't a reason to avoid the stock. Investors seeking passive income love this company because of its well-diversified collection of healthcare-related businesses. This conglomerate also generates reliable cash flows that it shares with investors in the form of a dividend that offers a 2.5% yield at the moment.

J&J's cash flows are so reliable that the company has been able to raise its dividend payout for 60 consecutive years. The latest rise of 6.6% isn't a big deal on its own, but over time those single-digit percentage payout bumps add up. Since 2010, this company's payout has more than doubled.

This is an especially interesting time to buy J&J because shareholders will get a two-for-one deal. In 2023, the company will spin off its consumer goods segment into a separate business. Sales of Band-Aids and baby shampoo have been somewhat stagnant in recent years. Separating the consumer business from the company's fast-growing med tech and pharmaceutical segments could unlock significant value over the long run.

Once adjusted for the sharply rising value of U.S. dollars, first-quarter medical device sales rose 8.5% year over year while pharmaceutical sales surged 9.3% higher. Over the past 12 months, the company generated a whopping $19.7 billion in free cash flow. Meeting its dividend commitments chewed through just 56% of free cash flow over the past year. That gives the company plenty of room to keep raising its payout at an inflation-beating pace in the years ahead.

Medical Properties Trust

Earlier this year, Medical Properties Trust (NYSE: MPW) delivered its ninth consecutive annual dividend raise. This real estate investment trust (REIT) doesn't increase its payout as quickly or as reliably as Johnson & Johnson. If you don't have decades to wait for gradual payout bumps to add up, though, this stock's 7.4% yield at recent prices can supercharge your retirement portfolio right away.

Medical Properties Trust buys hospitals and other medical buildings that it leases to operators in return for highly predictable rent payments. Investors can count on the company to direct its cash flows into their brokerage accounts, because 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 was able to overcome the potential disaster. In fact, Medical Properties Trust has already leased out 37 properties formerly occupied by Adeptus Health to new operators. Moreover, the market value of properties the company had originally invested $415 million to acquire has risen 17% to $484 million.

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

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Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson and Moderna Inc. The Motley Fool has a disclosure policy.


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