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4 Top Dividend Kings to Earn Passive Income

Barchart - Wed Feb 28, 1:37PM CST

The stock market's volatility may make some investors hesitant to invest their hard-earned money in it. This is where dividend stocks enter the picture.

Dividend stocks generate a consistent stream of income in the form of regular dividend payments. These stocks are best suited for investors looking for an uninterrupted passive income source. However, it is critical to select companies that have a strong track record of consistently paying dividends.

And what could be a more reliable option than the "Dividend Kings"? This title refers to companies that have increased their dividends each year for at least 50 years in a row. This demonstrates financial stability, strong management, and a dedication to returning value to shareholders. Additionally, these companies also provide long-term capital appreciation. 

Here, we've highlighted four Dividend Kings with a long track record of consistent dividend payments, even during economic downturns.

Dividend King #1: The Coca-Cola Company

With a rich history dating back to 1886, the Coca-Cola Company (KO) has grown into an iconic global beverage company. Its diverse portfolio of well-known brands, including Coca-Cola, Diet Coke, Minute Maid, Costa Coffee Fanta, Sprite, and others, has earned it a high level of customer loyalty.

That customer loyalty and pricing power have led to steady compounded annual growth rates (CAGR) of 3.6% and 4.2% in its top and bottom lines, respectively, over the last five years. KO has also earned a place as the longest-held stock in  Warren Buffett’s Berkshire Hathaway portfolio.

Coca-Cola has paid and increased dividends for the past 62 years, including the most recent increase this month. The stock has a 3.2% dividend yield, compared to the consumer staples sector average of 1.8%. Furthermore, a forward payout ratio of 64% indicates that KO's dividend payments are sustainable. Analysts expect revenue and earnings to grow by 0.05% and 4.6%, respectively, in 2024.

KO stock has only risen by 2.2% year-to-date, compared to the S&P 500 Index's ($SPX) roughly 7% gain. Analysts have given the stock an average target price of $66.07, indicating 9.5% expected upside from current levels.

Overall, analysts have rated Coca-Cola stock a “strong buy.” Out of 16 analysts covering the stock, 11 have a “strong buy” rating, one has a “moderate buy” rating, and four have a “hold” rating.

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Dividend King #2: Johnson & Johnson

Founded in 1886, healthcare juggernaut Johnson & Johnson (JNJ), also known as J&J, has made a mark in the consumer and healthcare sectors. Despite spinning off its consumer segment last year the company is thriving with its core pharmaceuticals and medical technology businesses. Its immunology drugs, Stelara and Tremfya, are its highest revenue-generating drugs. 

With the AI revolution, J&J has plenty of opportunities to grow its MedTech business in the near future. The global medtech market is expected to reach $748.2 billion by 2028, according to Statista.

J&J has increased dividends for the last 62 years. The stock has a 2.9% dividend yield, which is higher than the healthcare sector average of 1.6%. Its dividend payout ratio of 43.3% appears to be both sustainable and scalable as earnings rise. Analysts expect J&J's revenue and earnings to grow by 3.6% and 7.6%, respectively, in 2024.

JNJ stock is up around 2.7% YTD. Analysts have assigned a mean target price of $177.23 to JNJ, implying 10% expected upside from current levels. 

Overall, analysts have an average rating of “moderate buy” for JNJ stock. Out of 20 analysts covering the stock, eight have a “strong buy” rating, two have a “moderate buy” rating, and 10 suggest it is a “hold.”

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Dividend King #3: Procter & Gamble

Founded in 1837, Procter & Gamble Company (PG), informally known as P&G, has grown into a consumer staples giant, with legacy brands like Gillette, Braun, and Head & Shoulders in its portfolio, among others. This brand strength, combined with consumer loyalty, has enabled P&G to generate consistent earnings that can be returned to shareholders.

P&G has increased its dividend consistently for the past 67 years. It has an attractive yield of 2.4%, compared to the consumer staples sector average of 1.9%. Furthermore, the company's forward dividend payout ratio of 54% suggests that its earnings can support future dividend payments.

In the recently concluded second quarter of fiscal 2024, P&G's adjusted organic sales grew 4% while adjusted earnings jumped 16% year-over-year, despite a challenging macroeconomic environment. 

In fiscal 2024, P&G intends to generate 90% of net earnings as free cash flow. This should allow the company to meet its dividend payout target of more than $9 billion, while also repurchasing $5-$6 billion in shares.

P&G stock has gained 8.9% YTD. Analysts have an average target price of $168 for PG stock. This indicates an upside potential of about 5.2% from current levels.

Overall, Wall Street has rated P&G stock a “moderate buy.” Out of 19 analysts covering the stock, 11 have a “strong buy” rating, two have a “moderate buy” rating, and six have a “hold” rating.

Dividend King #4: AbbVie

Biotech stocks can be risky investments, because the success or failure of their drugs affects their financial stability. However, biotech company AbbVie (ABBV) has demonstrated the stability of its business by consistently generating enough earnings to pay and increase dividends over the last 52 years.

Humira - one of AbbVie's flagship products for the treatment of autoimmune conditions, including rheumatoid arthritis and Crohn's disease - has been a game-changer for the company. In 2023, Humira alone generated $14 billion in revenue, accounting for 26% of total revenue.

AbbVie's other high-performing drugs, Skyrizi and Rinvoq, generated $11.7 billion in revenue combined during 2023. The company expects both drugs to generate more than $27 billion together in 2027. Management is also targeting a “high single-digit compound annual revenue growth rate through 2029.”

With a forward payout ratio of 50.8%, AbbVie's dividends are sustainable and have room to grow. The stock has an attractive 3.5% yield, compared to the sector average of 1.6%. 

AbbVie stock has risen 14.8% YTD, and is trading roughly flat with analysts' average target price of $178.18. Its high target price of $196, however, suggests a potential 10% upside from current levels.

Overall, analysts have rated AbbVie stock a “moderate buy.” Out of 19 analysts covering the stock, 10 have a “strong buy” rating, two have a “moderate buy” rating, and seven have a “hold” rating.

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On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.

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