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“Invest $1,000 in These 3 Dividend Kings to Unlock Over $100 in Annual Passive Income”

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Three Dividend Kings to Consider for Steady Income

The stock market can be a great way to grow wealth over time. However, different investors will have various strategies based on their financial goals, risk tolerance, and personal interests.

One approach is to generate passive income through dividend stocks. Dividends allow investors to earn money without selling their shares, making them especially helpful for retirement planning. While no dividend is entirely without risk, certain companies are known for consistently paying and increasing their dividends.

Target (NYSE: TGT), PepsiCo (NASDAQ: PEP), and Kenvue (NYSE: KVUE) are all Dividend Kings, meaning they have raised their dividends for at least 50 consecutive years. A $1,000 investment in each could generate over $100 in annual passive income, with potential for more as their dividend growth continues.

Here’s a closer look at why investing in these three dividend stocks is a sound choice right now.

Person in front of laptop, taking notes and putting coins in a jar.

Image source: Getty Images.

Target Shows Signs of Recovery Amid Challenges

Target serves as a key indicator of the retail market and consumer spending habits. The recent years have posed challenges with supply chain issues, inflation, and a decrease in spending on non-essential items. Yet, Target is finally starting to show signs of improvement, with better operating margins and a return to growth. The company has made progress in reducing “shrink,” which refers to loss of inventory, primarily due to theft.

With a 2.9% dividend yield and a price-to-earnings (P/E) ratio of 15.9, Target is considered a solid value stock at this time.

Reliable dividend stocks tend to increase their payouts consistently due to earnings growth. Analysts believe Target has ample opportunities for growth in the future.

Target’s focus on discretionary products makes it more vulnerable during economic downturns, which partly explains its underperformance compared to Walmart (NYSE: WMT) this year. Target’s stock has risen 7.8% to date, while Walmart’s has soared 52.1%. Learning from Walmart’s successful strategies could boost Target’s performance.

Walmart has thrived during difficult times by focusing on value and offering a wide range of products, including healthcare and home delivery services that compete with Amazon.

While Target has expanded its Target Circle loyalty program, there remains significant room for growth. By enhancing its strategies, Target could become a strong long-term investment for those seeking passive income.

PepsiCo: Navigating Challenges with Strong Potential

Pepsi’s flagship products represent only a fraction of the larger PepsiCo brand, which includes popular names like Gatorade, Mountain Dew, Frito-Lay, and Quaker Foods. However, sales volumes for Pepsi have declined in 2024, as consumers react to ongoing price increases. In its third-quarter earnings report released on Oct. 8, Pepsi reduced its full-year organic growth forecast from 4% to “a low-single-digit increase.”

To attract customers, Pepsi is introducing promotions. Although it may take some time for volumes to recover, the stock presents an excellent value for patient investors.

In terms of market dynamics, Pepsi’s performance has lagged behind Coca-Cola (NYSE: KO). However, Pepsi boasts an impressive brand portfolio, and management is actively addressing challenges to improve performance.

The comparison of five-year median P/E ratios shows that Pepsi trades below its average while Coca-Cola’s stock trades above. Pepsi’s current yield of 3.2% surpasses Coca-Cola’s 2.8%. Despite facing setbacks, Pepsi continues to increase its dividend, most recently by 7% in July, marking the 52nd consecutive annual increase.

For these reasons, Pepsi is a strong candidate for investors seeking a steady investment.

Kenvue: A New Player with Promise

Kenvue stands out as a unique Dividend King, as it spun off from Johnson & Johnson in August 2023, inheriting J&J’s established dividend status. Now, Kenvue must demonstrate that it can uphold this legacy and perform well for its shareholders.

In July, Kenvue made its first independent dividend increase of 2.5%. While this may seem modest, the stock offers a yield of 3.8%, which is notably higher than the average yield in its sector.

As the largest consumer health company focusing solely on this market, Kenvue has a portfolio of reputable brands, including Band-Aid and Tylenol. However, Kenvue must prove that it can generate sufficient organic growth to justify further dividend increases.

Performance has been underwhelming; Kenvue reported a mere 1.5% organic growth in the second quarter of 2024. With an operating margin of 16.5%, this performance ranks it alongside competitors like Procter & Gamble and Clorox. Yet, Kenvue’s lower forward P/E ratio and higher yield make it an appealing value stock.

Strengthen Your Portfolio with These Three Dividend Stocks

Despite challenging consumer spending, Target, Pepsi, and Kenvue all offer attractive dividend yields, reasonable valuations, and robust business models that can withstand economic difficulties.

For those seeking quality investment options at favorable prices, these three Dividend Kings warrant further exploration.

Explore a New Investment Opportunity Today

If you’ve ever felt you missed out on investing in successful stocks, now might be your chance.

Our analysts occasionally issue a “Double Down” stock recommendation for companies poised for growth. If you believe you’ve lost out, this could be the right time to invest. The numbers highlight impressive returns:

  • Amazon: A $1,000 investment since our recommendation in 2010 would now be worth $21,266!
  • Apple: A $1,000 investment since our recommendation in 2008 would now yield $43,047!
  • Netflix: A $1,000 investment since 2004 could have grown to $389,794!

Currently, we’re issuing “Double Down” alerts for three exciting companies that may present another chance for significant returns.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

John Mackey, former CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Kenvue, Target, and Walmart. The Motley Fool also recommends Johnson & Johnson and Unilever. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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