Finding top passive income stocks to hold in one’s portfolio can provide positive long-term risk-adjusted returns. These stocks tend to be more stable, rising slower than high-growth stocks, but also declining less in downturns. For those concerned about the effect rising interest rates could have on the stock market, such passive income plays are worth considering.
Now, dividend-yielding stocks aren’t exempt from the pain of rising interest rates. Higher bond yields provide investors seeking risk-free yield with excellent alternatives to stocks. Accordingly, passive income stocks can see declines as investors recalibrate their portfolios toward fixed income or other alternative assets.
That said, for those looking to retain a strong allocation to equities, there are a number of passive income stocks worth considering. Many of the stocks on this list are high-growth passive income equities. Via raising their dividends each year, these stocks allow investors to protect their portfolios against inflation, to some degree. Most bonds don’t allow for that.
Additionally, these stocks also provide capital appreciation upside in good times. Should the market turn around, investors can participate in the upside of various rallies.
Accordingly, let’s take a look at seven top passive income stocks I think are worth a look right now.
- JPMorgan (NYSE:JPM)
- Microsoft (NASDAQ:MSFT)
- Coca-Cola (NYSE:KO)
- Chevron (NYSE:CVX)
- McDonald’s (NYSE:MCD)
- Crown Castle International (NYSE:CCI)
- Target (NYSE:TGT)
Top Passive Income Stocks: JPMorgan (JPM)
How about we start this list with one of the world’s largest financial institutions?
JPMorgan is a company with a market capitalization of more than $450 billion. This company has nearly 4,900 branches, offering nearly every financial service possible including credit cards, consumer and commercial banking, mortgage lending, investment banking, and asset management. In 2020, the company had revenue of around $120 billion.
The bank’s net interest income grew 1% to $13.2 billion in the third quarter of 2021. This was partly due to rates that were slightly up from the prior period. A small rise in net interest income when rates are still low can foreshadow remarkable gains in this area over the coming years. JPMorgan should be a prime beneficiary of increased interest rates as the Fed starts tightening its monetary policies.
This company also benefits from increased home sales. JPMorgan certainly has an unmatchable size and scale as a leading lender with $1 trillion in average loans. This can help prevent significant weakness if increased rates pressure demand for loans.
Though JPMorgan cut its dividend during the Great Recession, it is worth noting that it also increased its distribution for 11 consecutive years.
Microsoft is one passive income stocks that generally is about as far from being viewed a passive income stock as any in the market. Microsoft’s allure has been mostly to growth investors, with the company’s growth rate taking off in recent years. Spurred by the pandemic and secular growth catalysts, the company’s software and cloud businesses have boomed in recent years.
However, one of the overlooked aspects of MSFT stock is its dividend. Currently yielding around 0.8%, this is not a yield to write home about. While Microsoft has been diligent in raising its distribution over the years, the company’s soaring stock price has diminished this yield to extremely low levels.
For holders of MSFT stock, that’s a good thing. For those looking for passive income, perhaps not so much.
That said, Microsoft’s cash flow growth and stability provide for an iron-clad dividend investors can rely on. For those looking for a solid mix of growth and income, this is a stock that’s worth a look. Personally, I started looking at Microsoft around 10 years ago, when the company yielded in excess of 3%. Those days are far gone; however, investors who locked in those yields are certainly sitting pretty today.
Top Passive Income Stocks: Coca-Cola (KO)
One of the top massive income stocks I remain very bullish on is Coca-Cola. This world-class brand has become a conglomerate of beverage brands, now providing teas, milk, and sparkling water in addition to its core soda business. Other zero calorie options are also popping up, driving much of the company’s core growth. These healthier options, and a branching out of this company’s core brand, are likely to provide continued cash flow growth over time.
One of the more intriguing deals that has caught my eye has been Coke’s recent $5.6 billion acquisition of BodyArmor. This health/sports drink is one that investors believe could take off, with Coke’s marketing expertise and distribution networks. Time will tell on this, however, there’s a lot to like about the direction Coke is moving in.
Given the strength of the company’s core business, Coke’s 2.8% dividend yield is among the safest in the market. Furthermore, the company has managed to increase its dividend for 59 consecutive years. This puts Coke among the list of longest-tenured Dividend Aristocrats out there.
One of the most profitable and well-known energy companies in the world is Chevron. This company’s integrated business model includes downstream, midstream, and upstream operations. Accordingly, Chevron is an “all purpose” energy investment that has enticed world-class investors such as Warren Buffett to join the fold of late.
As energy prices have risen, so too has Chevron’s profit margins and overall earnings. Indeed, by owning nearly the entire value chain in the production of gasoline, Chevron can capture most of the value that’s created in turning crude oil into energy. For investors, this has been a very profitable bet, and one that still looks promising in 2022.
Chevron has topped earnings expectations by an average of 22% over the past two quarters. All indications are that this will continue in the quarters to come. For investors looking for dividend stability based on the strength of a company’s core business, Chevron is right up there with the best.
Currently, CVX stock yields a solid 4.1% at the time of writing. For those seeking a higher-yielding passive income option, Chevron is a great place to start.
Top Passive Income Stocks: McDonald’s (MCD)
McDonald’s is one of the best dividend growth stocks investors can add as a long-term holding. Since its incorporation by Ray Kroc in 1955, the brand has grown into an international empire. This company’s burger business may be considered a “front” for a booming property and franchise business that continues to grow over time.
Indeed, my view is that McDonald’s is a company that’s a rather misunderstood business. A great portion of the company’s value is derived from its real estate portfolio and franchise model, which are made possible by the company’s brand. As McDonald’s continues to grow globally, so too do the company’s earnings. However, the net asset value of McDonald’s business is more difficult to value, making this stock a gem to buy at these levels, particularly for those bullish on the value of real estate over time.
Those looking for a defensive passive income stock can’t go wrong owning McDonald’s. This company was one of the few giants which managed to grow its earnings per share during the 2008-2009 Great Recession. Thus, those concerned about volatility on the horizon may like how this passive income stock is positioned. Additionally, McDonald’s has managed to hike its dividends each and every year since 1976.
Crown Castle International (CCI)
Crown Castle International is a leading wireless tower real estate investment trust (REIT) stateside. This company leases approximately 40,000 cell towers to wireless service providers. These providers then install equipment on the cell towers to support wireless networks.
The company released its third-quarter results back in October. The site rental revenue for the period rose 8% year over year to $1.44 billion — up by $112 million. Plus, the company’s income from continuing operations was valued at $351 million, or 81 cents for every diluted share — up from $163 million in the prior-year quarter. Additionally, cash and equivalents ended the said period at $542 million.
Currently, mobile data accounts for around half of the web traffic globally. By this year, mobile data traffic is anticipated to touch 77.5 exabytes per month globally at a CAGR of 46%.
Analysts suggest Crown Castle International as a play on mobile data usage. As 5G spending grows, investors can expect the company’s 3.4% dividend yield to grow as well.
Top Passive Income Stocks: Target (TGT)
Finally, we have retail giant Target. This company, with more than 2,000 stores, is one of the leading employers in the U.S. The company’s recent partnership with Ulta Beauty (NASDAQ:ULTA), Apple (NASDAQ:AAPL), and Walt Disney (NYSE:DIS) to develop shop-in-shops that fuel greater customer traffic levels is something many investors have their eye on right now.
As a pandemic reopening play, Target is a company that’s seen a lot of interest. That’s because it’s a company that’s producing results. For the third quarter of 2021, the comparable store sales of this company rose by 12.7% on a year-on-year basis. Additionally, the company’s digital comparable sales growth got accelerated by 29%.
Target has been developing omnichannel sales capabilities, and over the coming years, it plans to make an annual investment of $4 billion. This allocation will provide for improved fulfillment services, new store openings, and store remodels. It appears that Target is well-placed for sustained growth with these investments.
Target Corporation posted a free cash flow of $2.1 billion and an operating cash flow of $5.6 billion for the first nine months of 2021. It is also worth noting that this organization boasts adequate financial resources to ramp up share repurchase and pay dividends. Currently, TGT stock carries a dividend yield of 1.7%.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.