All it takes is $800 invested in each of these 3 high yielding dividend stocks to generate over $100 in passive income per year

The Federal Reserve could start cutting interest rates as early as this month — which could be great news for dividend stocks.

Higher rates have made certificates of deposit and high-yield savings accounts more attractive to income investors over the past two years or so. But as rates of return begin to fall again, there will be more incentive to own dividend stocks. And that’s without considering the ways in which lower rates could benefit the types of companies that often pay dividends. For capital-intensive businesses that tend to have a large amount of debt on their balance sheet, lower interest rates can lower the cost of capital and make debt financing less expensive.

Lower rates should be great news for investors in the pipeline and energy infrastructure giant Kinder Morgan (KMI -0.65%) and utilities Dominion Energy (D 0.70%) and The Southern Company (SO 0.47%). Investing $800 in each stock should yield over $100 per year in passive income. Here’s why all three companies are solid dividend stocks to buy now.

Image source: Getty Images.

Kinder Morgan has taken the necessary steps to regain investor confidence

Kinder Morgan cut its dividend by 75% in December 2015 to conserve cash and address its over-leveraged balance sheet. Nearly nine years later, Kinder Morgan has turned its business around by managing expenses and paying down debt.

The plan for a successful midstream oil and gas company like Kinder Morgan is to build useful infrastructure projects that can earn steady cash flows for decades. Kinder Morgan’s pipelines act as toll booths for exploration and production companies, while its terminals provide storage, distribution, blending and logistics needs for petroleum products, chemicals and renewable fuels.

Kinder Morgan has made several reasonably-sized acquisitions in recent years for legacy assets and to increase its exposure to liquefied natural gas and low-carbon fuels. Kinder Morgan also believes natural gas will play a role in fueling the growth of energy-intensive data centers, though the extent of that opportunity remains to be seen.

With a dividend that has grown steadily over the past few years and yields 5.3% at recent prices, Kinder Morgan can fuel your portfolio with passive income.

Meet the new Dominion Energy

Dominion Energy could win S&P 500 this year, but zoom out and the stock has performed terribly over the medium term, losing 28% of its value over the past five years.

Blame most of that poor performance on a business model that used to be more complex. Dominion used to own oil and natural gas production assets, pipelines and utilities. But it has sold off much of those assets over the past five years Berkshire Hathaway Energy and Enbridge. Today, Dominion is more focused on its regulated electric utility assets.

Dominion is concentrated in Virginia, West Virginia, North Carolina and South Carolina. These states are primed for offshore wind opportunities, between coastal access to shallow waters along the continental shelf and the government’s desire to reduce emissions. The Dominion Coastal Virginia Offshore Wind (CVOW) project is expensive but expected to be decently efficient. Subsidies, such as those provided by the Inflation Relief Act, will help make the project more affordable. And Stonepeak acquired a 50% stake in CVOW in February, which will help reduce Dominion’s commitment. With less capital at stake, Dominion is better positioned from a risk management perspective.

For years, Dominion has been a messy company to invest in, and dividend investors have suffered. Dominion cut its quarterly payout from $0.94 per share to $0.63 at the end of 2020 to reset expectations and return the dividend to a manageable point. It has since increased that payout back to $0.6675 per share, for an impressive 4.8% return at recent prices.

With the worst probably in the rear view, Dominion looks like a good dividend stock to buy now.

The perfect role player in a passive income portfolio

With a market cap of about $95 billion, Southern Company is one of the most valuable utilities in the U.S. — and for good reason. Primarily focused on the southeastern US, the utility’s foundation is centered on traditional electric utility companies. But it also has a natural gas distribution and utilities segment and a power generation arm that includes wind, solar and natural gas generation facilities. Southern’s business model helps it generate predictable cash flows from long-term contracts and power purchase agreements.

The company has raised its dividend for over 20 consecutive years, with dividends roughly doubling over that time. It’s not the fastest growth rate, but Southern Company wants to make sure it keeps its payout ratio under control. Because of this, we can expect the dividend to grow at roughly the same rate as earnings, so Southern Company can maintain a payout ratio of between 50% and 75%. That way, the dividend expense doesn’t become too much of a burden.

With a price-to-earnings ratio of 20.6 and a yield of 3.3% at recent prices, Southern Company is a reliable dividend stock that income investors should consider now.