In good times and bad, investors want the best dividend stocks for passive income. However, it’s more than just Googling the top dividend names or biggest yields. In fact, there are a lot of considerations that should go into picking out bargain dividend stocks to boost your passive income. Passive income translates to “hands-off.” While this term is used a lot, it’s often misinterpreted. Meaning many passive-income seekers tend to think it means “no work.”
While many sources of passive income are actually quite “hands on” — like acting as a landlord without a property manager — dividend stocks are one of the true passive income generators out there. Simply buy the stock and collect the dividend. Depending on what you classify “working” or “hands free,” that may mean not doing any research beyond purchasing the stock. That’s obviously not recommended as investors should stay on top of what they own. However, if you have a passion for keeping tabs on your holdings, the work is enjoyable.
Regardless, let’s look at a few of the best dividend stocks for passive income.
|JNJ||Johnson & Johnson||$160.78|
Best Dividend Stocks for Passive Income: Johnson & Johnson (JNJ)
I am a firm believer in Johnson & Johnson (NYSE:JNJ) stock here. The company has been incredibly consistent over the years and has generated a massive return for patient, long-term shareholders. The stock has generated a ~250% return since the start of the century, but is up more than 1,200% over the last 30 years (just seven years beyond the first timeframe mentioned). Total return for those periods (which includes the dividend) explodes to 525% and 2,500%, respectively.
That’s what happens when you take the dividend into consideration. While it may seem impossible now, owning a stock like J&J for 20 to 30 years isn’t all that demanding. It takes patience, but patience is easier when the firm is consistent.
J&J recently raised its dividend for the 61st consecutive year. Six decades of annual dividend increases is no joke for investors serious about finding the best dividend stocks for passive income. Of course, it’s easier to buy the stock when it trades around 15 times earnings and has mid-single-digit earnings and revenue growth, like Johnson & Johnson.
This name is certainly out of favor at the moment, but 3M (NYSE:MMM) is trying to find its footing. The stock is expected to have a difficult 2023, but after such a large decline, how much more discounting is needed?
That’s not to say 3M can’t continue lower, but investors have to be aware of the situation. Estimates call for an earnings and revenue decline this year, but expect 3M to stabilize and return to growth next year. Because of this, we’re looking at a stock that’s down about 33% over the past year and down a whopping 50% from the 2021 high. Ouch. As a result, we’re looking at a name that trades at 11.5 times this year’s earnings and about 10 times next year’s forecast. Further, it pays a dividend yield of 5.95%. The firm has “paid dividends to its shareholders without interruption for more than 100 years.”
Further, in February the company’s modest boost to its dividend marked its 65th consecutive year of increasing dividends. So is this name perfect? No, not necessarily. But it’s been a dividend stud for a century, has a big yield and a low valuation.
A lot of people may take issue with this name. Either the yield is alarmingly high, as Altria (NYSE:MO) pays a dividend yield of more than 8%, or they will take issue with the company’s line of business (tobacco). Honestly, both reactions are just fine and it’s probably one reason why Altria garners such a low valuation. But the truth with this name is simple: Altria pays a big dividend, has a low valuation and has not only paid a dividend but has raised it for several decades.
This is truly one of the few dividend stocks with a high payout ratio and a low valuation — and a dependable track record. The firm’s most recent dividend boost was a 4.4% bump in September and marked “the 57th dividend increase in the past 53 years.”
Altria trades at about 9 times earnings. While it has stagnant revenue growth — analysts expect sub-1% growth this year and next year — consensus estimates call for solid mid-single-digit earnings growth of 4% to 5% in 2023 and 2024. Altria isn’t sexy and it will probably never garner a premium valuation, but it should continue to pay out its dividend for many years to come.
On the date of publication, Bret Kenwell held a long position in JNJ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.