Dividend Kings are hard to come by, but these five stocks offer investors some great passive income opportunities.
Dividend stocks can be an important pillar of a well-balanced, diversified investment strategy. Seeking passive income is a good way to supplement your portfolio while mitigating some of the volatility associated with owning individual stocks.
While there are many companies that pay a dividend, a special group known as Dividend Kings may offer the best selection. Becoming a Dividend King is no easy feat. Indeed, the five companies explored below not only pay a dividend but have raised their payout every year for at least the last half-century.
Let's explore the companies below and assess why now looks like a great time to scoop up some shares.
1. Altria
Altria (MO 1.78%) is the maker behind popular cigarette brand Marlboro. On the surface, investing in a sin stock may not be the most appealing prospect. Furthermore, Altria's operations have been under pressure for the last couple of years.
In 2023, Altria's total revenue shrunk by 2.4% to $24.5 billion. One of the main culprits of the sliding revenue base stems from falling cigarette volumes. Lingering inflation has impacted purchasing power for consumers. Moreover, rising awareness in health and wellness are making tobacco products less popular.
However, there are a couple of reasons why I still like Altria's investment prospects. First, the company is a specialist in mergers and acquisitions. One of the more interesting ones of the last few years was the acquisition of on!, an oral nicotine product and categorized as smokeless tobacco. In 2023, shipments in oral tobacco declined 2.2% year over year for Altria.
However, among the company's oral tobacco products, On! shipments were the only product that increased -- rising 38.5% year over year. At it only has a 6.8% market share, I'm encouraged by the current demand trends for On!, and am optimistic that it can become a leading source of growth for Altria in the long run.
Another reason why I like Altria is the company's commitment to sustain its dividend. In March, the company announced its intent to sell a portion of its stake in AB Inbev. Per Altria's filings, the company will use the proceeds to accelerate its share repurchase program.
Moreover, reducing its share count also helps Altria maintain its dividend. I think management is showcasing some solid leadership with this move and underlining how important creating shareholder value is for the company.
With the stock currently offering a hefty dividend yield of 9.3%, now looks like a great time to buy some shares.
Image source: Getty Images.
2. Kenvue
Kenvue (KVUE 1.63%) might not be a stock you recognize. The company is a spinoff of Johnson & Johnson and began trading on the New York Stock Exchange in August 2023.
Some of the brands that fall under Kenvue's management are Tylenol, Zyrtec, Nicorette, Neutrogena, Aveeno, and Listerine. Although demand trends in these types of products may experience some ebbs and flows depending on the season, I see Kenvue's strong pulse on household consumer goods as quite strong.
Similar to Altria, Kenvue has not been immune to the impacts of an inflationary environment -- with some consumers seeking out lower-cost alternatives or foregoing certain purchases in self care or skin health and beauty products altogether.
Currently, Kenvue's dividend payout ratio sits at 64%. However, the company generated $2.7 billion of free cash flow last year and a strengthening macroeconomic environment could lead to an influx of consumer spending activity. This should benefit Kenvue, and pave the way for further sources of returning capital to shareholders.
With shares trading close to 52-week lows, now could be a good opportunity to buy the dip and reap the benefits of some dividend income.
3. Coca-Cola
The third stock on my list is a staple of Warren Buffett's portfolio. Coca-Cola (KO 1.55%) is one of the most recognized brands in the world thanks to its beverage portfolio, which spans soda, water, tea, and coffee.
Interestingly, Coca-Cola's price-to-earnings (P/E) ratio of 24.4 is effectively right in line with that of the S&P 500.
The trends in the charts below illustrate how massive Coca-Cola's operation really is. With rising revenue, margins, and profits over the long term, it's no wonder the company is able to raise its dividend consistently.
I'll admit that Coca-Cola may not carry the same allure as high-growth opportunities in healthcare or software. However, the company's consistent, steady growth is precisely why dividend investors love this stock.
KO Revenue (Annual) data by YCharts
4. 3M
Among the companies on my list, 3M (MMM 1.98%) might be viewed as the most questionable. Sure, the company is a conglomerate that produces tons of household products.
However, rising competition and lower-cost alternatives have taken a toll on 3M's business. In 2023, the company shrunk in three of its four reportable segments. Declining sales have impacted operating margins, which is never a great sign for where profits could be headed.
So, why do I like 3M? Similar to Johnson & Johnson, 3M recently completed a spinoff. It spun off its healthcare division, a business now known as Solventum. While I don't necessarily see eye-popping growth for 3M in the short run, I see the spinoff as a good move as the company looks to optimize its higher-growth operating segments and mature into a more efficient business.
Furthermore, I think this is a good indicator that management values shareholder priorities and demonstrates its ability to be flexible.
5. Walmart
The last company on my list is also one of the newest members of the Dividend Kings. Walmart (WMT 1.34%) may be known for its large brick-and-mortar footprint. However, the company has some interesting catalysts that I think are overlooked right now.
In 2023, Walmart's e-commerce platform drove over $100 billion in sales for the first time. This is a huge milestone and underscores Walmart's evolution from a primarily physical retail operation.
Moreover, Walmart has several other budding businesses that investors should know about. Management is prioritizing the company's advertising platform as well as its marketplace and fulfillment services. Why? Because these segments carry much higher margins compared to Walmart's other core services.
This dynamic could be lucrative for Walmart shareholders in the long run. If the company executes on this plan, an expanding margin profile should lead to accelerated profits and cash flow. In turn, Walmart could use this to raise its dividend or repurchase shares.
The one drawback with Walmart is its valuation. At 31 times trailing earnings, the stock is by no means cheap. Nevertheless, I like Walmart's prospects in the long run. It's hard to go wrong with a best-in-breed brand, and with so many new disrupting opportunities on the horizon, I think Walmart is in a good position to expand beyond physical stores and dominate across several facets of the retail spectrum.
Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue and Walmart. The Motley Fool recommends 3M and Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
