In the last two years, interest rate hikes have driven the valuation of capital-intensive companies significantly lower as investors are worried about the negative impact of the higher cost of debt on profit margins and cash flows. However, the pullback allows you to buy beaten-down stocks that offer a tasty yield at a much lower multiple.
Investing in high-dividend stocks may be a sound strategy only if these payouts are sustainable while allowing shareholders to benefit from steady capital gains over time.
Here are two quality dividend stocks you can buy to generate $2,000 in passive income by 2025.
Brookfield Infrastructure Partners stock
Brookfield Infrastructure Partners (TSX:BIP.UN) owns and operates real assets such as utilities, midstream, and data centers. In recent years, BIP has been investing heavily in natural gas storage, and this segment has grown its FFO, or funds from operations, at an annual rate of 20% in the last five years. It also sold two non-core natural gas storage assets for US$100 million in total proceeds, providing it with the liquidity to shore up its balance sheet and reinvest in higher-return projects.
BIP is among the largest independent gas storage operators in North America and generated US$240 million in annual adjusted EBITDA (earnings before interest, tax, depreciation, and amortization).
BIP’s diversified portfolio of cash-generating assets allows it to pay shareholders an annual dividend of US$1.62 per share, indicating a forward yield of 5.4%. These payouts have more than doubled in the past 10 years. In addition to its tasty dividend yield, BIP stock trades at a 22% discount to consensus price target estimates.
Whitecap Resources stock
Founded in 2009, Whitecap Resources (TSX:WCP) has aggregated a significant light oil resource base in the past decade. Its portfolio of assets has stable production and low base declines, offering shareholders a predictable cash flow stream for monthly dividend payments.
WCP transports crude on pipelines and crude oil hubs across North America. Data from regulators suggest that crude oil pipelines transport 1.3 billion billion barrels of oil each year at a safety rate of 99.99%.
WCP’s commodity marketing strategies focus on developing reliable, safe, and cost-effective transportation opportunities to ensure access to diverse markets, which translates into optimum netbacks.
Due to a challenging macro environment, Whitecap’s funds flow fell to $384 million in the first quarter (Q1) of 2024, down from $448 million in the year-ago period. The company invested $393.2 million towards capital expenditures, which meant its free funds outflow stood at $9.2 million. Whitecap paid shareholders total dividends of $109.1 million in Q1, an increase of 24.4% year over year.
While Whitecap’s payout ratio is over 100%, the company is still expanding aggressively, and these investments should drive future cash flows higher. It currently pays shareholders an annual dividend of $0.73 per share, indicating a forward yield of 7%.
The Foolish takeaway
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Brookfield Infrastructure | $41.15 | 353 | $0.56 | $198 | Quarterly |
| Whitecap Resources | $10.35 | 1,406 | $0.061 | $85.75 | Monthly |
Investors looking to earn $2,000 in annual dividends by 2025 can consider investing $29,100 equally distributed between the two stocks right now, which will generate $1,820 in annual dividends in 2024. If these payouts are increased by 10% annually, your total dividends will be closer to $2,000 by the end of 2025.
