For the everyday investor looking to secure their financial future, the road to prosperity may be shorter than you think. Harnessing the power of dividend stocks can be a simple yet potent strategy to build a lasting income stream, even long after you’ve left the daily grind behind. With a few swift swipes on your brokerage app, you could find yourself basking in the glow of dividends that promise to swell as the years go by.

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At their current valuations, household names like Altria Group, Ares Capital, and AT&T beckon with an alluring average yield of 8.5%. With an investment as modest as $11,765 artfully divided among these stalwarts, you could find yourself the proud recipient of $1,000 in annual-dividend income. Let’s dive into why these equities not only sparkle now but could potentially evolve into gems by the time you kick back into retirement mode.

The Resilience of Altria Group

Altria Group, the behemoth of U.S. tobacco and the purveyor of the iconic Marlboro brand, boasts a substantial 9.6% dividend yield at present.

The company has deftly navigated a landscape where traditional cigarette sales wane, steering consumers toward non-combustible alternatives and judiciously raising prices on their flagship brand. This maneuver has allowed Altria Group to counterbalance the decline in cigarette revenue for years.

Despite concerns surrounding its e-cigarette venture, NJOY, and the persistent threat from illicit products flaunting banned fruity flavors, Altria Group seems poised to weather the storm. In 2023, the FDA ramped up its crackdown on illicit e-vapor goods, slapping over 100 civil fines and intercepting numerous international shipments.

While Altria Group may not sprint to the finish line in your portfolio, its steady gait implies progress over time. Despite turbulence from illegal e-vapor items, the company reported a 2.3% surge in adjusted earnings in 2023. Management’s forecast of further earnings growth between 1% to 4% this year hints at a gradual but upward trajectory.

Ares Capital: The Lender of Mid-Market Dreams

Ares Capital, the titanic figure in American business development companies (BDCs), presents investors with a tantalizing 9.5% dividend yield.

As a BDC, Ares Capital must channel a minimum of 90% of its profits back to shareholders as dividends, making robust growth a challenging feat. Nevertheless, the company upped its payout by a commendable 20% over the past three years.

The world of direct loans to businesses harbors illiquidity, especially since the 90s saw U.S. banks shy away from extending credit to middle-market enterprises raking in $10 million to $1 billion annually. Starved for capital, these businesses grudgingly accept interest rates slightly above the norm. Despite the tightening conditions, Ares Capital saw an average yield of 12.5% from debt securities in 2023, with 60% of its investments in secure loans.

Kudos to Ares Capital’s underwriting team for weathering the storm. In a climate infested with inflation and burgeoning interest rates, 2023 was a precarious year for lenders. Nevertheless, only 1.3% of their investments stood on non-accrual status at cost by the year’s end.

AT&T: A Tale of Transition and Triumph

AT&T, after a 47% slash in dividends post the spin-off of its media assets in 2022, has yet to resurrect its payout. Despite this, the stock flaunts a respectable 6.5% yield, hinting at bountiful dividend growth opportunities in the offing.

While the era of landline revenue fades into the backdrop, AT&T finds solace in the soaring heights of wireless-internet revenue to fill the void. Total sales experienced a 1.4% lift last year, driven partially by a 4.4% surge in mobility-service revenue.

Looking ahead, broadband-internet service could metamorphose into a formidable growth engine for AT&T in the coming years. Revenue from AT&T Fiber escalated by a whopping 22% last year, amounting to $1.7 billion. Although trailing Verizon and T-Mobile, AT&T unveiled a fixed wireless service – christened AT&T Internet Air – toward the tail-end of 2023.

In the previous year, AT&T fulfilled its dividend obligations using less than 40% of the $16.8 billion in free cash flow its operations generated. Anticipating a surge to $17 billion to $18 billion in the free cash flow domain this year, management remains bullish. A steady stream of income from broadband-internet subscribers could herald a period of consecutive annual-dividend hikes on the horizon.

*Stock Advisor returns as of February 26, 2024