Dividend stocks are getting hot again so it makes sense to look for the best dividend stocks for passive income.
The new year is here, and many investors are switching up their strategies. 2022 caused folks to doubt many preconceived notions. Previously hot trends such as cryptocurrency, cloud stocks and electric vehicles lost a great deal of appeal. Many investors have started to focus on profits, instead of revenue growth, above all else.
And, at the end of the day, a company’s primary purpose is to generate shareholder wealth. The best dividend stocks for passive income are an ideal form of that partnership, as they return steady (and ideally increasing) income to their owners each and every year. That’s especially welcome in times such as now when stock prices have been in a prolonged slump.
Dividend Aristocrats (companies that have increased their dividends for at least 25 consecutive years) are a particularly good hunting ground for passive income investors. These firms have raised their annual payment every year through the 9/11 attacks, the 2008 financial crisis, and the recent pandemic.
With that proven track record, Dividend Aristocrats offer steady and reliable income in these uncertain times. And, to make matters better, all seven of these best dividend stocks for passive income offer a starting yield of at least 3.0% today.
|Stanley Black & Decker
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is a great place to start adding the best dividend stocks for passive income to your portfolio. The firm is America’s largest energy company and has long been known as the rock-solid operator in the space.
Through decades of war, inflation, booms and busts, Exxon Mobil has kept making money and offering an ever-increasing dividend.
The firm’s conservative management team knows its shareholders rely on it for steady income. The company has adeptly handled the volatile industry, keeping its balance sheet strong while investing in new oil and gas resources even when other peers have shied away.
To that point, the company finds itself on particularly strong footing now. The firm kept investing heavily in chemical and refining assets while also opening a massive new offshore oil field in Guyana in recent years. This came even as most oil companies retrenched during the 2014-2021 energy bust.
Exxon now comes into this resurgent energy market with shares trading at less than 8x forward earnings while offering a 3.4% dividend yield.
Stanley Black & Decker (SWK)
Will 2023 mark the return to a more normal economic cycle? For investors in Stanley Black & Decker (NYSE:SWK), that is the expectation.
SWK stock rocketed higher in the early stages of the Covid-19 pandemic. People were stuck at home and spent record amounts on home improvement, repair, and remodeling projects. That included lots of new Stanley Black & Decker power tools and equipment.
These tend to be durable goods, however, meaning that people who bought tools in 2020 and 2021 are unlikely to purchase more in the near future. As a result, Stanley Black & Decker’s sales momentum faded in 2022 and the prognosis is uncertain for 2023 as well. However, we can forecast what the business will look like once sales trends return to more regular patterns.
Stanley Black & Decker traditionally earned approximately $6.50 per share in annual profits in the years leading up to the pandemic.
Assuming no additional growth since then, an 18x P/E ratio on Stanley Black & Decker’s normal level of earnings would lead to a stock price target of $117 against the current share price of $78. On top of that, SWK stock is a Dividend Aristocrat, making it an easy choice among the best dividend stocks for passive income to add to your portfolio. The current yield sits at 4.1%.
Clorox (NYSE:CLX) is another firm whose normal business cycle was massively disrupted by the pandemic. Clorox’s sales surged in 2020 as people stocked up their pantries with cleaning and hygiene products. Additionally, public venues greatly increased the frequency with which they cleaned their locations to try to slow the spread of the virus.
However, Clorox’s surge in earnings in 2020 quickly gave way. People still had tons of cleaning products at home and greatly slowed their purchases of Clorox products once the initial phase of the pandemic had passed.
Meanwhile, supply chain and inflation problems kicked in. Labor got much more expensive, as did the prices of chemicals and packaging materials needed for Clorox’s products.
All this to say that Clorox went from record profitability to earnings per share today that fall well short of the company’s pre-2020 levels. However, over time, demand will stabilize. The industry is historically a predictable one and it faces minimal risk from technological disruption.
Investors willing to buy CLX stock amid the current uncertainty are rewarded with a 3.3% dividend yield that comes in well above the firm’s traditional average, making it one of the best dividend stocks for passive income to buy on the upswing.
V.F. Corp (VFC)
V.F. Corporation (NYSE:VFC) is a large apparel company that owns more than a dozen different brands and trademarks, including Vans, The North Face, Dickies, Timberland and JanSport. V.F. covers a wide variety of demographics but is particularly focused on leisure and outdoor apparel.
Many investors tend to ignore the apparel industry. It has a reputation for being a cutthroat sector with slim profit margins and rapidly changing consumer behavior.
V.F. Corp’s business model shields investors from much of this uncertainty, however. Due to having so many different brands, there tends to be a few that are doing well regardless of current trends or developments in fashion. For example, at present, The North Face is seeing strong momentum, while Vans is struggling.
VFC stock has lost a stunning 70% of its value from its peak. Investors are worried about supply chain disruptions, a potential recession, and falling profit margins. These are all valid concerns.
That said, V.F. Corp has raised its dividend for 50 years in a row, including another increase in October 2022. The company has dealt with plenty of economic uncertainty before, and its unique business model positions it better than many rivals. Shares currently offer a generous 6.9% dividend yield.
Medtronic (NYSE:MDT) is a large medical devices company. The firm is known for its products in cardiology. However, it has expanded over the years and now serves a wide variety of other medical conditions, such as for neurology and diabetes.
The company has historically been a massive winner, with shares rising an astonishing 10,000% over the past forty years. But, MDT stock’s gains have ground to a halt since 2020.
A large part of that is due to the pandemic. Hospitals delayed elective surgeries to keep beds available for Covid-19 patients. In addition, many people put off surgeries to avoid being in a hospital and risking exposure to the virus. While things are normalizing now, the medical devices field sees some weakness continuing into mid-2023.
However, over the longer-term, medical devices remain a highly attractive market expected to reach nearly $1 trillion of total annual revenues in 2030.
America — and the world — is aging quickly. As the retiree-aged portion of the population rises, this will lead to increased spending on products that extend lives and improve people’s quality of life in their golden years. Thanks to the sell-off last year, MDT stock now goes for just 15 times forward earnings and offers a 3.4% dividend yield.
Consolidated Edison (ED)
Consolidated Edison (NYSE:ED) is one of the country’s largest power utilities. It primarily serves the New York City area, along with a portion of New Jersey.
The company has a storied history dating all the way back to 1823, making this the company’s 200-year anniversary. It has adapted to numerous technological changes over that span and is now leading the next evolution in the electric power industry.
That’s because Consolidated Edison is one of the largest producers of renewable power in America; it has been at the forefront of installing new large-scale solar capacity.
The company intends to spend another $72 billion on capital expenditures during the next decade. ConEd is a key part of the state of New York’s efforts to eliminate net carbon emissions in the electricity sector by 2040. This sort of project is valuable for utilities as they generally earn strong stabilized returns on investment for these regulated projects.
ED stock currently trades at around 21 times forward earnings. Shares offer a 3.3% dividend yield. This may not be a particular bargain at the moment, but it represents a decent value for such a stable storied blue-chip company as Consolidated Edison.
Realty Income (O)
Realty Income (NYSE:O) has a compelling message for dividend stock investors: It labeled itself “The Monthly Dividend Company.” Realty Income has paid a monthly dividend since 1994 and typically raises that payout amount several times each year.
The firm has managed these achievements thanks to its business model. It is a real estate investment trust dedicated to triple-net leases. This a lower-risk category of REIT, since in a triple net, the tenant is responsible for primary expenses such as utilities and building maintenance.
REITs had a fairly uninspiring 2022, and O stock was no exception as shares fell around 10%. Realty Income faces pressures from higher interest rates and a potential recession on the horizon.
However, the firm’s relative strength in 2022 versus the rest of the market goes to show the value of its conservative business model and high-quality roster of tenants. Shares currently yield 4.6%.
On the date of publication, Ian Bezek held a long position in VFC, ED, SWK, and XOM stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.