Recent studies prove once again that dividend stocks have the potential to:

  • Offer a plump income stream in good times and bad.
  • Provide diversification to growth-oriented portfolios.
  • Outperform the S&P 500 over the long haul.

Take a look at three dividend stocks that investment banking giant Barclays has given an “overweight” rating. And if those don’t appeal, plenty of exotic assets can provide passive income, too.

JPMorgan Chase (JPM)

JPMorgan sign
Katherine Welles/Shutterstock

With inflation running hot, many investors are concerned about interest rate hikes from the Fed.

Banks, however, typically do well in a rising interest rate environment. They get to charge more to lend money, and higher rates signal a stronger economy in which people can afford to pay those loans.

JPMorgan Chase is the largest bank in the U.S., with an astounding $3.8 trillion in assets. Trading at roughly $160 per share, the stock has climbed 27% year-to-date.

Barclays sees even more upside ahead in JPMorgan, as it has an overweight rating on the bank and a price target of $193.

Business has improved a lot from the pandemic-pained days of 2020. In Q3 of 2021, JPMorgan produced $3.74 per share in earnings, marking a 28% increase from the $2.92 per share earned in the year-ago period.

In June, the bank announced an 11% increase to its quarterly dividend rate to $1 per share, which comes out to an annual yield of 2.5% today.

Mind you, JPMorgan is not the only bank that gave a pay raise to shareholders this year. Peers like Goldman Sachs, Bank of America and Morgan Stanley have also increased their dividends.

If you don’t want to pick individual stocks, you can always build a diversified passive income portfolio automatically just by using your “spare change.”

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Microsoft (MSFT)

Microsoft Windows screen
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Tech stocks aren’t exactly known for their dividends, but the ones with massive recurring cash flows and healthy balance sheets can deliver solid cash payouts.

Take Microsoft, for instance.

When the tech giant first started paying quarterly dividends in 2004, it was paying investors 8 cents per share. Today, Microsoft’s quarterly dividend rate stands at 62 cents per share, marking a total payout increase of 675%.

The stock currently offers a dividend yield of only 0.8%. But given Microsoft’s highly reliable dividend growth — management has raised the payout for 12 straight years — it remains an attractive choice for many income investors.

On Oct. 27, Barclays reiterated an overweight rating on Microsoft and raised the price target on the stock to $363, about 10% up from current levels.

Microsoft trades at around $330 per share at the moment. But you can own a smaller piece of the company using a popular app that allows you to buy fractions of shares with as much money as you are willing to spend.

Shell Midstream Partners (SHLX)

Oil pipelines
Kodda/Shutterstock

This one is for the real yield-hungry investors.

Shell Midstream Partners owns, operates, develops and acquires pipelines and other midstream and logistics assets. It pays quarterly distributions of $0.30 per limited partner common unit.

With SHLX stock trading at $11.70 per unit, that quarterly payout translates to a jaw-dropping annual yield of 10.3%.

Ultra-high-yielding stocks — especially those from the volatile energy sector — might seem too good to last. But on Oct. 19, Barclays upgraded Shell Midstream Partners from equal weight to overweight and set a price target of $14 per unit.

Shell Midstream’s CEO Steven Ledbetter believes the market is undervaluing the partnership’s units and its “ability to deliver over the long term.”

“As such, we are evaluating options, such as using excess cash for a potential buyback program or increasing distributions in the future,” he said in the latest earnings conference call.

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Earn a passive income outside the stock market

Lamborghini with yachts
Andres Garcia Martin/Shutterstock

At the end of the day, even the most solid blue-chip dividend-paying companies aren’t immune to stock market volatility and downturns.

But you don’t have to limit yourself to the stock market.

If you want to invest in something that has little correlation with the ups and downs of the stock market, take a look at some alternative assets.

Traditionally, investing in commercial real estate, fine art or even luxury vehicle or marine finance have only been options for the ultra rich. But with the help of new platforms, these kinds of opportunities are now available to retail investors, too.

With a single investment, you can build a fixed-income portfolio spread across multiple asset classes.

Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

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About the Author

Jing Pan

Jing Pan

Investment Reporter

Jing is an investment reporter for MoneyWise. Prior to joining the team, he was a research analyst and editor at one of the leading financial publishing companies in North America. An avid advocate of investing for passive income, he wrote a monthly dividend stock newsletter for the better half of the past decade. Jing holds a Master’s Degree in Economics and an Honours Bachelor of Science Degree, both from the University of Toronto.

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