Building a Passive Income Stream: Three High-Yield Picks for February

In the pursuit of financial independence, constructing a portfolio that generates consistent and growing passive income is a cornerstone strategy for many long-term investors. With market uncertainties lingering, assets that offer robust yields and a history of reliable payouts continue to attract attention. This month, the spotlight falls on a master limited partnership, a dividend-focused ETF, and a diversified REIT, each presenting a compelling case for income-focused portfolios.

Energy Transfer LP (NYSE: ET) stands out as a heavyweight in the income space. This master limited partnership (MLP) currently offers a distribution yield of approximately 7.3%, starkly contrasting the S&P 500's average of around 1.1%. Beyond the headline yield, Energy Transfer has built a reputation for consistent distribution growth, typically announcing quarterly increases targeting 3% to 5% annual growth. The company's financial foundation appears solid for sustaining this trend, with roughly 90% of its cash flow derived from fee-based contracts and a conservative payout ratio near 50% of its distributable cash flow. A robust $5 billion-plus expansion pipeline through 2029, aimed at meeting rising natural gas demand from power generation and data centers, further supports the case for future distribution growth.

For investors seeking diversified exposure to dividend growth, the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) offers a curated approach. The ETF tracks a basket of 100 U.S. stocks selected for strong yield and a five-year history of dividend growth. It currently yields about 3.8%, and its underlying strategy has delivered impressive results: the average holding has increased its dividend by over 8% annually in the past five years. The fund's composition includes iconic dividend aristocrats like Chevron (39 consecutive years of increases) and Coca-Cola (63 years), underscoring its focus on durable income growth.

Rounding out the list is W.P. Carey Inc. (NYSE: WPC), a real estate investment trust (REIT) with a global footprint in industrial, warehouse, and retail properties. Its core strategy involves long-term net leases, where tenants cover most property expenses, providing highly predictable and steadily rising rental income. This model supports its current dividend yield of 5.2%. The REIT is actively expanding, deploying a record $2.1 billion into new properties last year, predominantly in warehouse and industrial sectors. With built-in rent escalations in its leases and a strong balance sheet, W.P. Carey is well-positioned to continue its pattern of quarterly dividend increases, exemplified by a 4.5% hike last year.

Together, these three investments represent distinct paths—a high-yield MLP, a diversified dividend ETF, and a growth-oriented REIT—toward a common goal: building a resilient and growing stream of passive income. For investors methodically working toward financial freedom, such assets can serve as foundational pillars in a long-term strategy.

Investor Perspectives

David Chen, Portfolio Manager at Horizon Wealth Advisors: "This selection highlights a prudent, multi-faceted approach to income. Energy Transfer's fee-based cash flows and SCHD's quality screen provide balance. W.P. Carey's net-lease model is particularly resilient in an inflationary environment."

Rebecca Shaw, Independent Retail Investor: "I've held SCHD for years as my core dividend engine. The automatic diversification and focus on dividend growers takes the stock-picking pressure off. Adding a high-yield component like ET can boost overall portfolio income, but investors must understand the K-1 tax implications of MLPs."

Marcus Thorne, Financial Blogger at 'The Skeptical Investor': "This is a classic 'yield-chasing' list that glosses over real risks. ET is leveraged and exposed to commodity price swings. SCHD's methodology can lead to value traps. And the entire REIT sector is getting hammered by rising rates—WPC isn't immune. Where's the discussion on total return versus just income? This feels like a sales pitch for high yields, not a balanced investment thesis."

Linda Gibson, Retired Teacher: "As someone relying on investment income, predictable cash flow is everything. I own W.P. Carey precisely because of those long-term leases. The quarterly increases, however small, help my income keep pace with rising costs. It's a cornerstone of my retirement portfolio."