Building Passive Income: Top 3 Dividend Kings to Buy Now
The stock market offers a great opportunity to grow wealth over time, although each investor has unique approaches based on their financial goals, risk willingness, and interests. One useful strategy for generating income is investing in dividend stocks, particularly for retirement or overall financial planning, as these can provide income without needing to sell shares.
Dividend stocks, while not completely risk-free, at least have companies that prioritize regular payments and focus on returning capital to shareholders. Among these reliable options are Target (NYSE: TGT), PepsiCo (NASDAQ: PEP), and Kenvue (NYSE: KVUE). These are classified as Dividend Kings, having paid and increased their dividends for more than 50 years consecutively. If one invested $1,000 in each, they would likely see at least $100 in passive income annually, with the potential for more as the trend continues.
Here’s a closer look at why these dividend stocks are solid investment choices today.
Target: Resilience Amid Retail Challenges
Target serves as a key indicator of consumer spending and the overall retail sector. Recently, the company faced issues like supply chain disruptions and rising inflation, which affected sales of discretionary items. However, it has shown signs of improvement with a more favorable operating margin and returning to growth. A key achievement has been reducing “shrink,” a term that refers to discrepancies between sales and inventory mainly impacted by theft.
Currently, Target boasts a 2.9% dividend yield and a price-to-earnings (P/E) ratio of 15.9, making it a strong value proposition for investors.
Companies that can consistently raise dividends do so thanks to growing earnings, and Target appears well-positioned for accelerated growth. While it trails Walmart (NYSE: WMT)—which has risen 52.1% year-to-date compared to Target’s 7.8%—the strategies employed by Walmart could provide valuable lessons for Target as it seeks to enhance its performance.
Walmart’s success lies in its ability to offer a wide range of low-cost goods and services, including healthcare and delivery options, which it has expanded in recent years. Target has also been expanding its customer loyalty program, Target Circle, but greater improvements could further enhance its market position and make it a better long-term investment for dividend-seeking investors.
PepsiCo: Positioned for Recovery
PepsiCo’s flagship products represent only a portion of its diverse portfolio, which includes popular brands like Gatorade, Mountain Dew, and Frito-Lay. However, the company has faced declining sales volumes in 2024, a result of consumers resisting consecutive price increases. In its latest earnings report from October 8, Pepsi revised its full-year organic growth prediction from 4% to a low-single-digit increase.
To attract customers, Pepsi has turned to promotional strategies, yet rebuilding its sales volume may take time. Nevertheless, investors looking for value should consider this an attractive opportunity.
In a comparison with Coca-Cola (NYSE: KO), Pepsi is not performing as strongly at the moment. However, it possesses a robust brand portfolio and has shown adaptability in response to market challenges.
The following chart illustrates that while both Pepsi and Coke have similar five-year median P/E ratios, Coca-Cola trades above this average, while Pepsi remains below.
With a dividend yield of 3.2%, Pepsi’s payout surpasses Coke’s 2.8%. Despite its challenges, Pepsi continues to be generous with its dividends, having raised its payout by 7% in July—marking its 52nd consecutive annual increase. Thus, Pepsi remains a dependable stock worth considering for income-focused investors.
Kenvue: A Fresh Face with Strong Potential
Kenvue is distinct among Dividend Kings, having been spun off from Johnson & Johnson in August 2023, thus inheriting the Dividend King title. Now, Kenvue must prove capable of continuing this tradition and delivering value to its shareholders.
In its first dividend increase as a standalone company, Kenvue raised its payout by a modest 2.5% in July. Although this may not seem significant, the company’s yield stands at a noteworthy 3.8%, exceeding that of many competitors in the consumer staples sector, which averages around 2.5%.
As the leading pure-play consumer health company by revenues, with recognized brands like Band-Aid and Tylenol, Kenvue has the potential to be a steady source of dividends, even in fluctuating economic conditions. However, it must demonstrate that its brands can achieve price stability and sufficient growth to warrant continued dividend hikes.
While Kenvue’s second quarter of 2024 showed a mere 1.5% organic growth from the previous year, its operating margin of 16.5% is comparable with industry peers such as Procter & Gamble, Church & Dwight, Kimberly Clark, and Clorox. Yet, Kenvue’s lower forward P/E ratio and higher yield render it a compelling value proposition.
Boost Your Passive Income with These Dividend Kings
All three Dividend Kings—Target, Pepsi, and Kenvue—have faced headwinds from slowing consumer spending. However, they all offer appealing yields, attractive valuations, and sound business models, which position them well to weather ongoing challenges.
Investors seeking quality companies at reasonable prices should delve into Target, Pepsi, and Kenvue as compelling options.
Seize Your Opportunity for Investment
Do you sometimes feel like you’ve missed opportunities to invest in successful stocks? If so, consider this a valuable moment.
Our analysts occasionally issue a “Double Down” stock recommendation for companies they believe are on the brink of significant growth. If you think you may have missed earlier chances to invest, the time to act is now. Here are some historical returns:
- Amazon: A $1,000 investment when we doubled down in 2010 would be worth $21,266 now!*
- Apple: Investing $1,000 during our 2008 recommendation would now yield $43,047!*
- Netflix: A $1,000 bet when we doubled down in 2004 has grown to $389,794!*
At this moment, we’re providing “Double Down” alerts for three exceptional companies, and these may soon be your last chance for investment.
See 3 “Double Down” stocks »
*Stock Advisor returns as of October 7, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 recommends Johnson & Johnson and Unilever and suggests the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.