Editors note: The American States Water section of this article have been corrected to include correct numbers and information for the company.
The past year reminded investors how volatile the stock markets can be. Yet while the volatility and uncertainty can be unsettling, there's one place you can put your money to good use even amid the chaos: dividend stocks.
Dividend stocks can earn you steady, passive income even during tough times, and if the stocks also regularly grow their dividends, you could even build a fortune over your lifetime. If the idea of buying such a dividend stock now to earn a lifetime of passive income appeals to you, here are three stocks to check out right away.
1. Johnson & Johnson: A mega transformation underway
Among the thousands of stocks listed in the U.S. today, there are fewer than 50 Dividend Kings, or companies that have increased dividends every year for at least 50 consecutive years. Johnson & Johnson (JNJ 1.49%) is one of them, having increased its dividend for the 60th consecutive year in 2022. The stock and its dividend growth have made patient investors filthy rich over the decades.
Three factors make Johnson & Johnson's dividends so safe. First, healthcare is a resilient business, and Johnson & Johnson is the world's largest, most diversified healthcare products company. More than 29 of its products or platforms generate more than $1 billion in annual sales each.
Second, Johnson & Johnson maintains a strong balance sheet and prioritizes cash flows. Third, Johnson & Johnson uses all of that cash prudently -- after spending on research and development and growth opportunities like mergers and acquisitions, it pays out incremental cash as its dividend.
There's a solid reason to buy Johnson & Johnson stock in 2023: The company will spin off its cyclical consumer health business later this year to focus on pharmaceutical and medtech, both of which have generated higher margins in recent years.
Johnson & Johnson stock currently yields 2.7%, will continue to increase dividends after the spinoff, and they could even get bigger with time as the company unlocks more value from the spinoff.
Dividends are a major reason why Johnson & Johnson is one of Warren Buffett's favorite stocks. It should be yours too if you're looking to earn passive income forever.
2. American States Water: An underrated passive income monster
In wealth-making, boring is often beautiful, and the adage holds truer for some dividend stocks than you may know. American States Water (AWR 1.88%) is a fine example. In just the past 10 years, you could have more than quadrupled your money in American States Water stock. The longer-term story for this dividend stock is even more astounding.
American States Water provides water and wastewater services to more than one million consumers across nine states in the U.S., and also serves 11 military bases under 50-year contracts from the U.S. government. The stock's unbroken 68-year streak of consecutive annual dividend increases is also the longest dividend streak among Dividend Kings.
If you don't already own this dividend powerhouse, buy it now. 2022 was a solid year for American States Water, as it raised its dividend by 8.9% and said it wants to grow its dividend at a compound annual growth rate (CAGR) of more than 7% in the long term. It's a doable target going by the company's history: It grew its dividend at a CAGR of 9.2% between 2012 and 2022, driven by capital spending that has regularly supported growth in rate base, or the value of assets used to provide services and on which tariffs are determined.
Meanwhile, American States Water is actively bidding for more military bases waiting to be privatized to grow the business.
Overall, that's perhaps one of the best and safest dividend profiles you could find in the stock markets today, where dividends have risen every year for more than six decades, could grow by a CAGR of more than 7% in the coming years, and still leave the company with ample cash to pursue growth opportunities. This is exactly the kind of stock you'd want to buy to secure passive income for life.
3. Enterprise Products Partners: A new upcoming Dividend King
The energy sector is vital to the economy, but the unpredictability of commodity markets often keep investors away from oil and gas stocks. They're not entirely wrong: Oil prices even went negative for the first time in history in 2020 after a dramatic drop.
Yet not every oil and gas company is exposed to fuel prices, which is why the oil and gas industry is home to some top-notch dividend stocks that didn't just pay but increased dividends even in the most turbulent years. They're the kind of stocks that can hold up even in a volatile oil market and earn you passive income forever. Enterprise Products Partners (EPD 1.41%) is one such stock.
Enterprise Products Partners is an energy infrastructure company that charges fees under long-term contracts for transporting crude oil, natural gas, natural gas liquids, refined products, and petrochemicals through its pipelines. The company has nearly $5.5 billion of projects under construction now, several of which are expected to become operational this year and add to its cash flows.
Enterprise Products Partners has a solid cash-flow history, and it has prudently returned cash to shareholders in the form of dividends. In 2022, the energy giant increased its dividend for the 24th consecutive year as it grew its distributable cash flow (DCF) by 17% to $7.8 billion. DCF covered its dividends comfortably by 1.9 times.
Enterprise Products looks all set to become a Dividend King in 2023. The stock is already cheap right now, and with its hefty yield of 7.4%, this is one of the best high-yield stocks to buy in 2023 for a lifetime of passive income.
