The First 3 Passive Income Investments I Plan to Make In February

I want to become financially independent. For me, that means having a portfolio that produces enough passive income to cover my basic living expenses. I strive to make progress toward this goal each month by investing in assets that generate passive income.

I plan to start February off by buying additional shares of Energy Transfer (NYSE: ET), the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), and W.P. Carey (NYSE: WPC). Here's why they're the first income-focused investment I plan to make this month.

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This high-yielding payout continues growing

Energy Transfer is a passive income juggernaut. The master limited partnership (MLP) currently yields around 7.3%, several times higher than the S&P 500 (1.1% yield). At that higher rate, every $100 I invest in the MLP would generate about $7.30 of distribution income each year compared to only $1.10 for a $100 investment in an S&P 500 Index fund.

The MLP also has an excellent record of increasing its distribution. It typically raises its payment each quarter, aiming for an annual growth rate of 3% to 5%. Energy Transfer has delivered distribution growth of more than 3% over the past year.

Energy Transfer can easily afford to continue growing its high-yielding payout. It generates stable cash flow (90% comes from fees) and has a conservative payout ratio of around 50% of its steady cash flow. The company also has a robust backlog of expansion projects. It plans to invest $5 billion to $5.5 billion this year on projects that should enter service through 2029. The company has additional projects under development to support the growing demand for natural gas from power plants and data centers. These investments should support future distribution increases.

100 top high-yielding dividend stocks in one fund

The Schwab U.S. Equity Dividend ETF offers investors a lucrative, steadily rising income stream. The ETF tracks 100 top high-yielding dividend stocks selected based on several quality characteristics, including yield and five-year dividend growth rate.

Its trailing 12-month distribution yield is an enticing 3.8%. Meanwhile, the ETF has steadily raised its quarterly payments as its underlying holdings hike their dividends. Over the last five years, its average holding has increased its payout by more than 8% annually.

Most of the fund's holdings have long records of increasing their dividends. For example, Chevron recently extended its dividend growth streak to 39 years in a row. Meanwhile, Coca-Cola has raised its dividend for 63 consecutive years. Given its focus on holding high-yielding dividend growth stocks, the Schwab U.S. Dividend Equity ETF should continue to distribute more cash to its investors each year.

Record investments support this REIT's growing dividend

W.P. Carey is a real estate investment trust (REIT) focused on investing in a diversified portfolio of income-generating industrial, warehouse, retail, and other properties across North America and Europe. It primarily owns operationally critical real estate secured by long-term net leases with built-in rent escalations. Net leases provide very predictable rental revenue because tenants cover all property operating expenses, including building insurance, real estate taxes, and routine maintenance. W.P. Carey's leases provide it with steadily rising rental income to support its 5.2%-yielding dividend.

The REIT invested a record $2.1 billion into new properties last year. Most of its new investments were warehouse and industrial buildings (68% of its volume). W.P. Carey also spent $322 million on a portfolio of 10 fitness facilities net leased to Life Time Fitness, which is now its third-largest tenant.

Rising rental income from existing leases and incremental income from new property investments enable W.P. Carey to increase its dividend. The company typically raises its dividend each quarter. It grew its payment by 4.5% last year. With built-in rent growth and a strong financial profile to continue expanding its portfolio, W.P. Carey is in an excellent position to increase its dividend going forward.

Adding to my growing income streams this month

Energy Transfer, the Schwab U.S. Dividend Equity ETF, and W.P. Carey all offer high-yielding and steadily rising income streams. That makes them ideally suited to my passive income investment strategy. It's why I plan to make them my first three income-related investments this month as I continue to work toward my goal of achieving financial freedom through passive income.

Matt DiLallo has positions in Chevron, Coca-Cola, Energy Transfer, Schwab U.S. Dividend Equity ETF, and W.P. Carey. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.