High-yielding stocks have always been an excellent source of passive income, and in most periods observed, they got better returns than the S&P 500. Entering the holiday season, investors will want to buy dividend stocks for passive income generation.

A study by Wellington Management revealed that second-quintile stocks, with average dividend payouts, regularly outperformed the index. The top and middle dividend payers also beat the index on 67% of occasions.

The payout ratio, which shows the portion of earnings being paid out as dividends, is also an important consideration—the average payout ratio is 74% (top-quintile stocks). Second-quintile shares were more conservative, with an average of 40%. It points to the dangers of high dividend payout ratios, especially if earnings fall.

The dividend stocks, especially the growers, have displayed remarkable endurance; from 1986 to 2016 they compounded their returns at an annual rate of just under average equity appreciation by one-eleventh. This performance demonstrates their trustworthiness and potential for growth.

All in all, dividend stocks–especially those with reasonable distributions of profits –have always done better than the market over very long periods. For such dividends to be sustainable, the payout ratio must be monitored. It’s also true that dividend stocks have a great track record, but you need to pick them carefully and through the prism of strategy.

Baker Hughes (BKR)

Baker Hughes (NASDAQ:BKR) is an outstanding dividend stock this year, with a 19 % return so far. Therefore, it’s an attractive product for investors hoping to expand their passive income portfolio.

In terms of its latest financial results, the company’s sales have increased by 24 % to $6.64 billion, and net income has soared a whopping 30 times to $518 million over last year.

One of the strong points for Baker Hughes is that its operating expenses only changed by a little, remaining essentially flat. As a result, net profit margin has come in healthy at 7.8%, with earnings per share shooting up by an astounding 62%. The company’s EBITDA increased 32% to US $987 million, proving its business capabilities.

Nonetheless, Baker Hughes is not merely concerned with the bottom line but also changing energy. The company is also strengthening its advanced services and technology, has a robust presence on LNG projects, and is taking giant steps toward energy transition. In addition, the company is leading in innovation and new energy contracts–especially as it concerns carbon capture and hydrogen. Thus, Baker Hughes is well-placed in the changing energy market.

Besides its strong financial performance and leadership in the industry, this company also returns 20 cents per share of cash to investors on a quarterly basis. It has raised its dividend for the last six years consecutively.

Baker Hughes isn’t just stock; it is a torch for yield-hunters and an example of foresighted corporate policy. The company stands out with its strong financial performance and world-leading position in the market. Its dedication to rewarding investors as shareholders makes it a compelling choice for anyone seeking extra passive income.

Kinder Morgan (KMI)

Kinder Morgan (NYSE:KMI) Kinder Morgan, despite inauspicious finances, may appeal to investors seeking to buy dividend stocks for passive income.

Over the past five years, the company has experienced a 15 % return. As one of the largest energy infrastructure companies in North America, the return might strike some as odd. However, this is a legacy company we are talking about. We cannot expect the company to have the same returns as hot-shot growth stocks. Under the circumstances, the results are not bad.

Plus, and this is the best part, when investing in the company, you get access to a nifty dividend. Kinder Morgan exhibits a strong dividend profile with a history of paying and increasing dividends. It has a dividend yield of around 6.38% with a five-year track record of dividend increases. The sector average hovers around 4 percent. This clearly indicates that we are discussing an exceptional dividend play.

However, its latest financials show that revenue decreased and net income slipped slightly. However, earnings per share and EBITDA have both increased, which shows a strong business core. Kinder Morgan’s strategic growth path is apparent in a series of expansions. That includes the purchase of NextEra Energy’s South Texas Gas Pipelines. Its recent investment in renewable diesel hubs in California reflects the company’s ability to adjust accordingly to current energy trends.

Kinder Morgan’s dynamic character is also evident in the way it handles complex projects like the Trans Mountain Pipeline.

All in all, Kinder Morgan has a combination of safe income potential and cutting-edge growth strategies to appeal to investors. This holiday season, as you analyze dividend stocks to buy for passive income, this one is worth watching.

Essential Utilities (WTRG)

In the midst of a 23 % slide in year-to-date returns, Essential Utilities (NYSE:WTRG) is still causing waves. Net profit in Q3 of 2023 soared an impressive 17 % from the same period last year, and a net profit margin as high as 19.5 %. This has solidified the stock as an underappreciated dividend, which plays great for investors looking to generate income passively.

That investment smarts is clear. Besides providing quality and reliable service, in 2022 alone, more than $1.06 billion was spent on infrastructure at Essential Utilities, bringing better things every day with a sense of progressive growth. No investor wants capital costs to rise exponentially. But to stay competitive, established energy companies may need to accept higher capital costs. These companies often become appealing choices for investors seeking dividend stocks for passive income.

Regarding sustainability, Essential Utilities is something of a down-to-earth fashion guru–it’s aiming for a 60 % cut in greenhouse emissions by the year 2035. This is what constitutes its $ 3.3 billion infrastructure plan and shows that Safi Homes values responsible growth.

Looking into the future, Essential Utilities is anticipating average earnings growth at a rate of 5% to 7% through 2025.

In summary, Essential Utilities stands out as an excellent choice for investors looking to buy dividend stocks for passing income. The company’s strong dedication to environmental and service responsibilities enhances its appeal. In addition, the combination of financial stability and corporate responsibility positions it as an attractive option.

On the publication date, Faizan Farooque did not hold (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.