7 of the Best Dividend Stocks for Passive Income

Dividend Stocks - 7 of the Best Dividend Stocks for Passive Income

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Some investors don’t focus on dividends, but over many years, dividend stocks can be great wealth generators. For this reason, many investors do focus on these stocks. 

In particular, many investors take advantage of the income that dividends provide. Not to mention that many high-quality dividends happen to come from high-quality companies, giving dividend stock investors great long-term holdings.

While it’s true that there are some red flags with certain income situations, as well as value traps, many of these stocks are worth following. Several of these dividend stocks are even worth investing in. Let’s look at seven such stocks now. 

  • Realty Income (NYSE:O)
  • McDonald’s (NYSE:MCD)
  • Verizon (NYSE:VZ)
  • Federal Realty (NYSE:FRT)
  • Target (NYSE:TGT)
  • Lowe’s (NYSE:LOW)
  • Johnson & Johnson (NYSE:JNJ)

Dividend Stocks to Buy: Realty Income (O)

a person in a suit holds a tiny house to represent reits to buy

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Known as The Monthly Dividend Company, Realty Income is a high-quality business that investors simply need to keep an eye on. That’s particularly true if they’re on the hunt for quality dividend stocks. 

Shares of Realty Income were hammered during the coronavirus correction in March 2020. The stock ultimately fell more than 50% from peak to trough. However, we’ve seen a number of other stocks, sectors and even the overall market march back to new highs. At the very least, we’ve seen these assets climb back to their pre-coronavirus highs.

Not Realty Income though. It’s like investors fell out of love with real estate investment trusts (REITs) once the pandemic hit. At first, the selling made sense, even if there was panic and the dip was overdone. That’s as investors feared that swaths of tenants couldn’t (or wouldn’t) pay their rents. 

That fear has been overstated, as O stock has kept on trucking. When we look at the dividend, the consistency shines through. 

Realty Income has paid a monthly dividend for 615 consecutive months (51 years) and has raised that dividend for 96 consecutive quarters (24 years). For income investors, this is a must-own stock, particularly with its 4% dividend yield. 

McDonald’s (MCD)

image of McDonald's (MCD) golden arches on a pole indicating a drive-through area with the sky at dusk in the background

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When it comes to dividend stocks, McDonald’s is no slouch either. In September, the company gave a solid 7% boost to its payout, bringing the yield to about 2.3%. While that’s not a huge yield, it’s notable in this low-rate environment. Further, it’s also notable for a stock that continues to perform. 

McDonald’s stock is up more than 14% so far this year. So much for boring, huh? That’s particularly true with the stock recently hitting an all-time high during the recent market correction

More impressive than the 7% increase to the dividend is the consistency in which management has handled it. From the company after the most recent raise: “McDonald’s has a strong history of returning capital to its shareholders and has raised its dividend for 45 consecutive years since paying its first dividend in 1976.” 

When we invest in dividend stocks, we also want to invest in solid companies. When looking at the forecasts, the future looks bright for McDonald’s.

Analysts expect almost 20% revenue growth this year, alongside 50% earnings growth. In 2022, consensus expectations call for roughly 10% revenue and earnings growth.

Dividend Stocks to Buy: Verizon (VZ)

a Verizon (VZ) storefront building

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With its near-5% dividend yield, Verizon is one of the dividend stocks investors should have their eye on. This is particularly true after we got a couple of key developments. 

First, the stock has been dragged lower over the past few weeks. I’m not sure if that’s because of the price action in AT&T (NYSE:T), but it likely doesn’t help. That selloff gave investors a low to measure against at $50.86. Now bulls can be long against that level, looking for some type of rebound in the ensuing weeks and months.

If the stock breaks this level, investors can consider exiting the position, for a limited-risk setup. 

But after the company reported earnings, things are looking pretty good. On Oct. 20, Verizon not only beat on its third-quarter earnings expectations, but also raised its guidance. That should give investors a confidence boost and give them the green light to stay long. 

With a juicy dividend, recent selloff and strong quarterly results, I like Verizon.

Federal Realty (FRT)

 

Circling back to the REITs, Federal Realty is another stock investors should focus on. Like Realty though, this name remains below its 2020 highs. This is one of the few high-quality stocks that hasn’t fully recovered from the coronavirus selloff. 

Early in the selloff, dividend investors saw the stock’s dividend yield swell to more than 5%. For Federal Realty, that’s a huge rarity. In fact, before the coronavirus selloff, it hadn’t happened since the Great Recession more than 10 years ago. 

That yield has since dipped down to 3.5%, but accumulating the stock with a yield at or above this figure should still be considered a victory by income investors. In fact, between 2011 and 2019, Federal Realty’s yield only temporarily jumped above 3.5% once, in 2018. 

In August, the company raised its dividend for the 54th consecutive year. That’s “the longest record of consecutive annual dividend increases in the REIT sector.”

Dividend Stocks to Buy: Target (TGT)

A Target (TGT) store during dusk

Source: Target

We’ve seen a really nice rebound in Target stock following a much-needed pullback. Shares have been on fire this year, up 43% despite the recent correction. Over the past year the stock is up 44%. In the past 3 years, those gains swell to more than 200%. 

While some investors may bemoan the stock’s paltry 1.45% dividend yield, let’s try to keep in mind just how well the stock has performed. I’ll take a sub-2% dividend yield for a 200% gain in three years for the underlying asset any day of the week. 

With the holidays quickly approaching, Target stock may be just getting started with its recent rally. For the year, analysts are looking for almost 12% revenue growth and almost 40% earnings growth. 

When it comes to the dividend, the yield may be lacking but the consistency is not. In 2019 and 2020, Target increased the dividend payout by about 3% each year. Then in June, management dropped an unexpected bombshell: A 32% increase to the payout

“With the increase announced today, 2021 is on track to be the 50th consecutive year in which Target has increased its annual dividend.”

Welcome to the club, Target. 

Lowe’s (LOW)

the front of a Lowe's store

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Looking for another retailer with a huge increase in the dividend this year? Lowe’s. 

In May, Lowe’s gave a 33% boost to its dividend. The company has increased its dividend for more than 25 consecutive years and has “paid a cash dividend every quarter since going public in 1961.” That’s 60 years of consistency

Also like Target, the dividend yield sits at just 1.42%. However, long-term bulls aren’t disappointed. Not only did they get a big boost in the payout this year, but the stock has been a real stud over the last few years. 

Lowe’s stock is up 125% over the last 3 years and 28.3% over the last 12 months. So far this year, the stock is up about 40%.

There’s only so much complaining an investor can do when the stock is rolling like this. Plus it helps that the housing market remains incredibly strong, leading to solid growth for Lowe’s. 

Dividend Stocks to Buy: Johnson & Johnson (JNJ)

A photo of a store shelf filled with Johnson and Johnson's (JNJ) Tylenol boxes.

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There are a lot of companies we could go with for the last spot on this list, but why not end with Johnson & Johnson? 

I like that the stock is rallying after reporting better-than-expected third-quarter earnings. While the company did come up a bit short on revenue, investors were willing to look past it. That’s likely on account that management guided to better-than-expected earnings and revenue for next quarter and the full-year. 

Not to mention, J&J continues to ride momentum from its single dose Covid-19 vaccine, which the company is now applying for full Food and Drug Administration approval. It already got the nod from the FDA for an additional booster shot

Despite a recent pullback in the stock price, this behemoth still sports a market capitalization of $433 billion and dishes out a 2.6% dividend yield. As it pertains to that payout, it’s one investors can definitely count on. 

In April, the company delivered a 5% increase to its dividend, its 59th consecutive year of doing so. That came a year after its 6.3% dividend increase in April 2020. At the time, uncertainty was sky high due to the Covid-19 outbreak, yet J&J management made sure to come out and make an incredible move to boost investor confidence. 

Bulls will look forward to year 60 in April 2022. 

On the date of publication, Bret Kenwell held a long position in O. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


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