Forget Rental Properties: Invest $10,000 in These High-Yielding Dividend Stocks for Passive Income

Passive income is a popular concept these days. Defined as money earned outside of traditional employment and requiring minimal time or effort, it’s a tempting proposition for investors tired of the rat race.

Many people will present buying rental properties as the best form of passive income. But I think that’s a misnomer. Managing rental properties can be lucrative, but it does take a lot of time and effort to maintain. It’s not “passive” income in the traditional sense.

The purest form of passive income comes from buying high dividend stocks, as they require no maintenance to keep the cash flowing. Here are two ultra high dividend stocks you can buy for $10,000 over any rental property for your investment portfolio right now.

Traditional tobacco pricing power

Many investors shy away from investing in tobacco companies. There is a perception that the sector is in terminal decline, with fewer and fewer cigarette users worldwide. While it is true that tobacco consumption is declining, there is still plenty of profit to be made for traditional brands such as Marlboro, owned by Altria Group (MO 0.32%). With so much skepticism surrounding the industry, you can buy shares at a low multiple of earnings today. The current price-to-earnings (P/E) ratio is 8.7.

Altria Group currently has a dividend yield of 7.83%. If you invest $10,000 in Altria stock, the company will pay you $783 in dividends each year. For the past 10 years, Altria has consistently raised its dividend per share to shareholders, and the payout has increased by 100% over those 10 years.

Fueling this dividend growth is the pricing power of tobacco brands like Marlboro. Even as cigarette consumption—especially in the U.S.—is declining, Altria has the pricing power to counteract volume declines and grow cash flow (the lifeblood of dividend payouts). Free cash flow per share has increased 125.8% over the past 10 years, despite massive declines in U.S. cigarette consumption.

Cigarettes may not be around forever. But they will continue to generate healthy cash flow for years to come. That makes Altria Group an easy dividend stock that will likely generate a ton of passive income and help you grow your wealth without lifting a finger.

MO PE data by YCharts

International exposure and new generation products

Perhaps the more promising tobacco company is British American Tobacco (WIT) -0.35%). It owns such traditional cigarette brands as Newport and has a higher dividend yield than Altria Group at 8.21%. That equates to $821 in passive annual income on a $10,000 investment.

In addition, British American Tobacco has had much greater success with new nicotine products that are taking market share away from cigarettes. These include electronic vaping cigarettes and nicotine pods. This combined segment reached profitability for the company in 2023 and will be a significant driver of earnings and cash flow growth in the coming years.

Despite the headwinds of currency depreciation, British American Tobacco has grown its free cash flow per share by 35% since 2019. During that period, next-generation products have been a headwind to profitability as the company scales up its operations. They are expected to be a tailwind to earnings growth over the next five years.

Similar to Altria Group, British American Tobacco has plenty of room to continue growing its free cash flow per share over the next 10 years. With a very high dividend yield of over 8%, British American Tobacco is a great stock to own to add passive income to your portfolio.

Both of these stocks have a much higher dividend yield than S&P500 index, which is currently yielding a paltry 1.32%. As the Federal Reserve lowers interest rates, it will be harder to earn high interest on a savings account or Treasury bonds. For those focused on passive income, British American Tobacco and Altria Group look like attractive assets to own in your portfolio now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco Plc and recommends the following options: long January 2026 $40 call options on British American Tobacco and short January 2026 $40 put options on British American Tobacco. The Motley Fool has a disclosure policy.