3 Passive Income Powerhouses to Buy Before the Year End
at the time S&P 500 With big gains this year, it can be easy to miss out on the value of reliable dividend stocks. After all, what good is a 3% return if the market is up almost 20%?
However, the value of blue-chip dividend stocks lies not in how they perform during bull markets, but rather in their regular quarterly payouts regardless of market conditions. The best dividend paying companies go one step further by raising their dividends every year, even during economic downturns. This way, investors can expect an increase in their income stream when they need it most.
Coca Cola (watt hours -0.74%), clorox (160 -0.19%)and target (TGT -1.96%) It has been raising its dividend every year for decades. Here’s why each stock is worth buying before the end of the year.
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Coca-Cola’s moat was on display this year.
Depending on who you ask, Coca-Cola stock’s reputation can be either phenomenal or mediocre. The easiest criticism is that Coca-Cola is a stock that is not worth owning due to its low growth and poor market performance. But Coca-Cola supporters will argue that the company’s track record of dividend increases and stock buybacks and wide moat make it worth owning.
Coca-Cola’s 10-year chart is certainly disappointing. Trailing 12-month returns are actually lower today than they were 10 years ago. Meanwhile, net profit increased only 26% in 10 years, and the stock price rose only 43% compared to the S&P 500’s 150% increase. However, the consumer staples sector tends to underperform in bull markets. Coca-Cola’s underperformance doesn’t seem so bad when compared to the sector instead of the S&P 500.
KO data from YCharts
The quality of Coca-Cola’s repayment is its history of dividend increases. Coca-Cola is one of the oldest dividend kings, with 61 consecutive years of paying and increasing dividends. Dividends have increased by more than 50% in the past decade alone. And over the past year, Coca-Cola has achieved strong bottom-line growth despite price increases, demonstrating the brand’s strength and ability to combat inflation.
Investors who are more concerned with capital preservation than capital gains will probably be drawn to Coca-Cola, where the pros outweigh the cons. The secret is to get the stock at a good price. Coca-Cola’s 24 price-to-earnings (P/E) ratio is reasonable compared to the S&P 500. With a dividend yield of 3.1%, now is a great time to buy Coca-Cola if it fits your financial goals.
It’s time to get Clorox back on track.
Earlier this fall, Clorox stock suffered a quick and brutal sell-off, largely due to a cyberattack. The stock has recently shown signs of recovery and is currently up 22% from its 52-week low. But if you zoom out, the stock is essentially flat year to date.
Like Coke, Clorox has a strong portfolio of brands that support stable dividend growth. In addition to its flagship brand, Clorox, Clorox also owns Burt’s Bees, Glad garbage bags, Brita water filters, and Kingsford charcoal. Considering the product categories that Clorox is in and the fact that Clorox’s market capitalization is much smaller than Coke’s, there is slightly more growth potential for Clorox than Coke. However, Clorox is still primarily a dividend stock. And stock prices haven’t fallen as much as they did during the worst of the cyberattack scare.
Still, Clorox is a good value. The dividend yield is 3.4%. Although its current P/E ratio is high, Clorox has made meaningful cost savings and price increases that lay the foundation for strong earnings results once it fully recovers from the cyberattack.
The subject is too cheap to ignore.
Like Clorox, Target also experienced a major sell-off with its stock trading at about $103 per share. Since November 1, Target is up 24.9%. However, it is still declining in 2023 and has fallen more than 20% over the past three years.
Target has been dealing with inflationary pressures, declining consumer spending on discretionary goods, inventory issues and theft. The past few years have been a very difficult time predicting buyer behavior. While there was a wave of excitement during the pandemic, today it has shifted to a more reserved level. Higher interest rates make it more expensive to borrow money and put pressure on consumers to spend within their means.
Unfortunately for Target, that means a potentially downer holiday season. That’s why Target chose to maintain lean inventory rather than risk being overly optimistic and implementing steep discounts to get products off the shelves after the holidays.
Even after the recent partial rebound in the stock price, the return is still 3.2%. Like Coca-Cola, it is a dividend king that has recorded dividend increases for more than 50 consecutive years. Target also has greater growth potential than Coca-Cola or Clorox. We’ve seen great results with rewards programs, curbside pickup, e-commerce, and more. Margins are showing signs of improvement, with operating margins last quarter reaching 5.2%, a significant improvement over last year’s massive margin slump.
TGT Operating Margin (Quarterly) Data from YCharts
The target is definitely not out of the woods yet. And it may take time to fully recover. But the stock is still cheap, trading at a P/E ratio of 17.4. For a company with Target’s brand power and dividend track record, that’s too low.
A company you can trust even in 2024
Coke, Clorox, and Target are three stocks that are ideally suited for investors whose financial goals include generating consistent passive income. Each stock yields over 3%, which is close to the risk-free 10-year Treasury rate of 4.2%. Only through stocks can you reap the potential rewards (and take on the risks) of investing.
High-quality dividend stocks like Coke, Clorox, and Target should prove to be worthwhile investments that provide a mix of dividend income and capital gains over time.
