Want steady, passive income? Buy these dividend stocks with higher yields, Wall Street says

Published Tue, Feb 20 20246:20 PM ESTUpdated Thu, Mar 14 202412:47 AM EDT

Dividend stocks often appeal to investors who want steady income and long-term growth. And 2024 is shaping up to be a good year for them: Analysts and fund managers are generally bullish , citing factors such as lower interest rates, which is good for stocks. Dividend stocks came under the spotlight after Meta unexpectedly announced a dividend for the first time. BofA has also been bullish on dividend stocks lately, saying investors may flock back to such stocks for income if yields fall this year, in turn driving up this segment of stocks. "Retirees have shifted assets to cash for income, but an easing cycle could drive them to equity income funds," BofA said in a February note. "Trillions of USD of retiree cash could shift into equity income if short rates fall below 5% (the apparent tipping point)," it wrote. Wall Street and other pros share their tips on how to pick good dividend stocks and what names will generate sustainable income. How to pick dividend stocks Brian Stutland, portfolio manager of the Rational Equity Armor Fund, says his strategy is to go beyond traditional dividend havens by balancing yield and growth. "While chasing purely high yields can be tempting for a stream of income, prioritizing companies with sustainable dividends and growth potential offers a more balanced approach because I just don't want the stock paying me back my own money," he told CNBC Pro. In fact, using that strategy mitigates the risk of relying only on dividend income if higher rates affect dividend distributions, according to Stutland. His fund's primary goal is seeking dividend income, but also uses hedging strategies to manage risk. It's among this year's top performers so far, ranking in the top 5% of options trading funds, according to Morningstar. Goldman says that based on an analysis of historical dividend initiations, companies are more likely to declare a dividend if they are large, profit margins are high, they buy back shares, have stable earnings and low valuations. Stocks to buy Stutland named companies such as Walmart , Target and Home Depot as stocks that offer dividend income and growth at the same time. "These companies offer decent dividend yields (1.5-3%) while also possessing significant growth potential tied to economic cycles and consumer spending," he said. "This combination provides a buffer against future interest rate hikes and offers the possibility of capital appreciation alongside dividend income." It's also essential that the company is able to dish out dividends in a sustainable way, said Stutland. Stocks such as McDonald's and Coca-Cola are able to do that, he added. "These companies continue to show the ability to sustain its dividend payouts. A high yield today might not hold if earnings or economic conditions deteriorate, thus I like to find companies that have demonstrated a consistency no matter the economic downturn," he said. Stutland also likes one stock with a higher dividend yield of 6.4%: U.S. telecommunications giant Verizon . The stock is currently below its highs but seems to have a "growth aspect" via its business of multi-cloud management services, he said. He added Verizon "looks attractive" at a price of between $37 and $43. It closed at $40.49 on Friday. In a February note, BofA came up with a screen of S & P 500 companies that it says can offer, over the next three years, a higher dividend yield than if investors had allocated to cash. That's assuming short-term rates start to peak — the 2-year Treasury is currently around 4.6% and the 10-year is around 4.3%. Here are some buy-rated names in BofA's screen. — CNBC's Michael Bloom contributed to this report.