Every investor wants passive income. After all, who doesn't want to sit back and collect checks without having to lift a finger? If you're an income investor, you know that one of the best forms of passive income is quarterly dividends, the share of profits you get from the stocks you own.
Dividends are an especially good source of comfort during bear markets like the current one, because dividend stocks tend to outperform their non-dividend-paying counterparts. Stock market sell-offs also offer great opportunities to buy dividend stocks because dividend yields go up as stock prices go down.
If you want a passive income stream you can count on for the next decade, keep reading to see three great dividend stocks to buy today.
1. Costco: the leader of warehouse retail
Few companies have thrived in both the early stages of the pandemic and the more recent ones like Costco Wholesale (COST -0.12%), the membership-based warehouse retailer that now generates more than $200 billion in annual revenue.
While most of its retail peers have struggled in recent months with bloated inventories and the consumer shift in spending from goods back to services, Costco has held strong. In its most-recent quarter, comparable sales adjusted for fuel and currency exchange rose 10.4%, and overall revenue jumped 15.2% to $70.8 billion.
Even more impressive was that the company posted bottom-line growth at a time when most of its peers are seeing profits fizzle. Operating income rose 10% to $2.5 billion, and earnings per share increased 12% to $4.20.
The company enjoys a number of competitive advantages, including its loyal membership base, with renewal rates above 90%, the private-label Kirkland brand, and a unique business model that allows it to offer bargain prices on high-quality goods. It's also growing both through new brick-and-mortar stores and in e-commerce.
Though Costco may not look like a dividend powerhouse since its current dividend yield is just 0.8%, the company has a history of paying special dividends every few years, with its last one being a $10-per-share-share dividend in Dec. 2020. The company has also grown its dividend by 10% or more nearly every year since initiating it in 2004, meaning it should be well on its way to becoming a Dividend Aristocrat.
2. Nike: A brand powerhouse that's stood the test of time
Nike (NKE -0.74%) stock tumbled on its recent earnings report, but investors shouldn't be fooled by the sell-off. Though revenue growth slowed and earnings have fallen, the challenges the company is facing are largely temporary. Those include a stronger dollar, excess inventory levels, and weakness in China due to Covid lockdowns.
Outside of China, the company's performance in the quarter was surprisingly strong with currency-neutral revenue up 13% or more in every region outside of China. This shows that the long-term driver of the company's success, namely customer demand, continues to be strong, and that its shift to direct and digital channels through company-owned stores and e-commerce, including apps like SNKRS, should continue and has also improved profitability, notwithstanding the current challenges. Nike's also gaining market share on rivals like Adidas and Under Armour, showing the business is getting stronger even in a difficult environment.
With the stock down roughly 50% from its peak last year, investors can take advantage of the discount in this long-term winner. For income investors, Nike's dividend yield may be modest at 1.4%, but the company also looks poised to be a Dividend Aristocrat as, like Costco, it's raised its dividend by 10% or more almost every year since it started paying one in 2007.
3. TJX Companies: The off-price leader
While e-commerce has leveled broad swaths of the brick-and-mortar retail industry, the off-price segment has continued to thrive as it's proven difficult to disrupt online.
As the clear leader in off-price retail,TJX Companies (TJX 1.20%), which includes TJ Maxx, Marshall's, and Home Goods, has mastered the business model, which offers discounted prices on name brand merchandise that it gets through sources like vendor closeout sales, excess inventory from department stores, or cancellations. That model keeps customers coming back through the treasure-hunt effect, meaning they never know what they'll find in a TJX store.
This approach has proven to be highly profitable. Even in a difficult environment, the company posted a 9.2% operating margin in its most recent quarter, much better than a majority of its peers, and it continues to grow its store base. TJX sees room in the market to expand from roughly 4,700 stores currently to 6,275 over time, not including any acquisitions.
As a dividend payer, TJX also looks like a promising long-term bet with a 1.8% dividend yield today. Had the pandemic not forced it to pause its dividend for three quarters in 2020, it would be a Dividend Aristocrat today. Still, its track record over the 25 years is admirable as it's raised the payout by at least 10% or more every year.
Considering the growth opportunity in off-price retail, TJX should continue to reward investors over the next 20 years.
