It could actually be comforting to hold stocks of strong firms that always pay passive income to shareholders. By selecting the fitting dividend stocks, an investor can easily put together a portfolio that yields around 3% every yr in dividend income. If the companies you select grow their earnings, they’ll also boost the dividend payment and the yield in your original investment.
To get you began, three Motley Idiot contributors were asked to give you their best stock picks that pays you passive income for the remaining of your life. Here’s why they selected Coca-Cola (NYSE: KO), Philip Morris International (NYSE: PM), and Home Depot (NYSE: HD).
Spend money on Warren Buffett’s favorite
John Ballard (Coca-Cola): Investing in firms with strong competitive advantages can protect and grow your money over a few years. Coca-Cola’s global brand power and high annual sales volume will certainly fit the bill. They’re why Warren Buffett has held a giant position throughout the stock for over 30 years.
People eat 2.2 billion servings of Coke products daily or about 800 billion servings annually. This includes the 200-plus brands it owns, including Fanta, Sprite, Minute Maid juices, Dasani water, Costa Coffee, Fuze Tea, Powerade, and Simply. A giant product portfolio provides many avenues to drive sales.
All those servings generated $10 billion in profit on $46 billion of revenue over the past 4 quarters. The company paid out three-quarters of its earnings in dividends over the past yr, or $0.485 per share, bringing the forward dividend yield to 2.71%.
Coca-Cola has increased its dividend for 62 consecutive years and increased the quarterly payment by 5% earlier this yr. Management continues to accurately allocate capital and take away costs from operations to boost margins, all of which go toward supporting growing earnings and dividends to shareholders.
Investors have rewarded the company for its ability to proceed growing earnings at double-digit rates despite a difficult retail environment. Wall Street analysts expect the company’s adjusted earnings to be up 14% this yr. That’s the reason the stock is hitting latest highs, but its above-average dividend yield suggests the shares are still inexpensive for brand recent investors to start a position.
A transformative tobacco stock
Jeremy Bowman (Philip Morris International): PMI might look like an odd suggestion for a dividend stock to buy and hold perpetually. In any case, smoking rates have been declining for generations. But that hasn’t stopped PMI, which operates in international markets wherein smoking rates are higher than throughout the U.S., from continuing to grow and deliver strong results.
In reality, that’s way greater than a regular tobacco company today. Roughly 40% of its revenue comes from next-gen, smoke-free products like its iQOS heat-not-burn devices and Zyn chewable nicotine pouches, which it gained through its acquisition of Swedish Match in 2023.
Now, Philip Morris International is playing offense. For instance:
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The company recently acquired the rights to sell iQOS throughout the U.S. from Altria and is ramping up plans for a launch of the product later this yr.
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Similarly, the company also just announced that it was investing $232 million to expand a Zyn production plant in Kentucky.
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Last month, it said it would spend $600 million to construct a Zyn facility in Colorado.
PMI’s recent numbers also show the company is delivering strong growth for a dividend stock. Organic revenue was up 9.6% yr over yr throughout the second quarter to $9.5 billion. Revenue growth from its smoke-free business was even stronger at 18.3%, while combustibles grew by a great 4.8%. Adjusted earnings per share also jumped 11% to $1.77.
As a dividend payer, PMI currently offers a yield of 4.3%, which should keep investors blissful, especially considering the strong growth throughout the business. Considering its mixture of growth and yield, Philip Morris International deserves a spot in any dividend investor’s portfolio.
A market-beating stock with an exquisite dividend
Jennifer Saibil (Home Depot): Home Depot is a market-beating stock that also pays a growing dividend with a reasonably yield. In other words, it’s an exquisite dividend stock.
This will not be probably the most effective time for Home Depot. Customers are switching right right down to cheaper products throughout retail, and Home Depot’s larger and costlier products aren’t essentials that customers are going to binge on immediately. The company is being further pressured by an actual estate industry that remains to be underwater.
But Home Depot is crucial home improvement chain on the planet, and it’s change into the leader throughout the industry by offering a great experience for shoppers with an omnichannel focus. Comparable sales were down 3.3% from last yr throughout the 2024 fiscal second quarter (ended July 28), but total sales were up barely bit (0.6%).
Management will not be expecting any magic immediately. It’s doing what it does best: giving customers what they need and waiting out the inflationary environment while strengthening the business’s position. It’s still expecting a decline in comparable sales and a lower operating margin for the whole yr.
Inside the meantime, it pays a top dividend. Home Depot has paid a dividend for near 40 years, and it has increased the payout by greater than 4,500% since it began. The dividend has added tremendous value to the stock price. Even without the dividend, shareholders would have beaten the market over the past 10 years, but with the dividend, the gain moves from 306% to 412%.
Home Depot stock is trailing the market this yr, nevertheless it’s up 8%. Its business should easily rebound under higher macroeconomic conditions, and it should get back to beating the market over the long term. It’s highly profitable, with $4.60 in earnings per share (EPS) throughout the second quarter and $4.7 billion in free money flow, plenty to fund the dividend.
At this time price, Home Depot’s dividend yields 2.3%. The company has paid it under all kinds of circumstances, and shareholders can benefit from market-beating potential and passive income.
Do you’ve to take a position $1,000 in Coca-Cola immediately?
Before you buy stock in Coca-Cola, consider this:
The Motley Idiot Stock Advisor analyst team just identified what they consider are the 10 best stocks for investors to buy now… and Coca-Cola wasn’t one amongst them. The ten stocks that made the cut could produce monster returns within the approaching years.
Consider when Nvidia made this list on April 15, 2005… within the event you invested $1,000 on the time of our suggestion, you’d have $720,542!*
Stock Advisor provides investors with an easy-to-follow blueprint for achievement, including guidance on constructing a portfolio, regular updates from analysts, and two latest stock picks every month. The Stock Advisor service has greater than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of August 26, 2024
Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Home Depot. The Motley Idiot recommends Philip Morris International. The Motley Idiot has a disclosure policy.
3 Dividend Stocks to Buy Now and Hold Perpetually was originally published by The Motley Idiot