2 top stocks to buy with dividends yielding more than 3%

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I have two passive income stocks to buy on my radar at the moment. One is a FTSE 100 mining stock, the other is a consumer products company that’s part of the S&P 500.

Both stocks have substantial dividend yields. This is something that I think is important when it comes to investing to generate dividend income.

There’s a lot to be said for companies that are growing their dividend payouts. But I think that an effective passive income stock needs a high yield to start with.

The S&P 500 currently has a dividend yield of 1.7%. If I invest £1,000 today and the dividend grows at 10% per year, I’ll receive £315 in dividend income over the next decade.

Alternatively, I could invest the same £1,000 in a stock that currently yields 3% that only grows its dividends at 1% per year. In that case, I’ll receive £405 over 10 years.

To me, this shows that stocks with high dividend yields have a big advantage over stocks that are growing quickly. Here are my two top stocks to buy with dividends yielding more than 3%.

Rio Tinto

Rio Tinto (LSE:RIO) currently has a dividend yield of around 9.5%. This won’t last, though – the company has already announced that next year’s dividend will be lower.

Even if the dividend gets cut in half, though, that still leaves a dividend with a yield above 4%. And there’s plenty more that I like about the stock as a passive income vehicle.

As a mining company, the profitability of the underlying business is tied to the price of the commodities it extracts. In turn, its dividends are determined by its profitability.

Each year, the company pays a basic dividend and an additional special dividend. The basic distribution has increased consistently enough to make the stock a dividend aristocrat.

I expect Rio Tinto’s basic dividend to increase consistently. And that’s enough to make it interesting to me as a dividend stock to buy today.

Moreover, I think that the company’s special dividends will be strong. While commodities prices might fluctuate, I expect Rio Tinto’s copper operations to trend higher over time.

Kellogg

In many ways, Kellogg (NYSE:K) is the opposite of Rio Tinto. The stock currently has a dividend yield of 3.1%.

The company has three main business arms. The first is snacks, the second is cereals, and the third is plant-based foods.

In general, I expect demand for Kellogg’s products to remain stable over time. Management continues to invest in its brands and I think that this will result in steady sales and profits.

The organisation is currently restructuring. It’s in the process of separating its three divisions into individual businesses.

I expect the dividend payments to persist, though. While each business can set its own dividend policy, I think that the overall payout should remain solid.

As a result, I’d be pleased to buy Kellogg shares at their current prices. My intention is to collect dividends and reinvest them which I think should be a successful strategy over time.

The post 2 top stocks to buy with dividends yielding more than 3% appeared first on The Motley Fool UK.

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Stephen Wright has positions in Kellogg. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.