The idea of buying a stock and scoring a payment just for owning it may seem too good to be true. But it isn't. This is exactly what dividend stocks offer you: the promise of regular payments each year no matter what the market is doing. The passive income can limit your losses during market downturns and boost your winnings when stocks are soaring. So, dividend players make valuable additions to your portfolio at any moment.
Which dividend stocks should you choose? Well, whether you're a dividend aficionado or you're new to this amazing world of passive income, consider the list of Dividend Kings. These are companies that have lifted their dividend payments for more than 50 straight years, showing dividend growth is important to them -- and that suggests they're likely to continue along this path. Let's check out two top Dividend Kings to buy now.
Image source: Getty Images.
1. Coca-Cola
Everyone knows Coca-Cola (KO) for its eponymous beverage and even some of its many other brands, such as Dasani water or Minute Maid juices. But investors have taken notice of this company because of its reputation as a dividend giant. Coca-Cola pays a dividend of $1.84 per share, representing a dividend yield of 3.14% -- that's higher than the S&P 500's yield of 1.62%.
Coca-Cola's financial situation is solid, allowing it to pay out more than 65% of its free cash flow in dividends in recent years. And the company's $10 billion in free cash flow makes me confident this can continue. So, when you invest in Coca-Cola, you can pretty much count on collecting more and more passive income each year.
You'll like Coca-Cola for more than just passive income though. The company, as market leader, has a significant moat or competitive advantage -- its brand. When people want a Coca-Cola, they generally won't accept another brand, and they'll pay a bit more too. Coca-Cola has lifted prices on occasion during the recent times of higher costs, and that hasn't hurt earnings.
Speaking of earnings, in the most recent quarter, the company reported gains in revenue and earnings per share -- and it continues to gain value share in the non-alcoholic ready to drink beverages market. Coca-Cola even lifted its full-year revenue forecast.
For all of this, you'll pay 21x forward earnings estimates for Coca-Cola stock right now, down from more than 25 earlier this year -- a bargain for a company that has what it takes to grow earnings and your passive income.
2. Johnson & Johnson
Johnson & Johnson (JNJ -0.46%), like Coca-Cola, has the resources to keep rolling along the dividend growth path. The company generates $15 billion in free cash flow and recently reiterated that dividend growth remains one of its priorities. J&J pays a dividend of $4.76 per share, representing a yield of 3.08%.
So, J&J makes an excellent addition to your portfolio if you're looking for passive income. But you also may benefit from a new wave of growth if you get in on the stock today. For a couple of reasons.
First, the pharma giant recently spun off its consumer health unit -- its slowest growing business -- to focus on its higher-growth businesses of pharmaceuticals and medtech. The deal gave J&J $13 billion in proceeds, which should help the company increase growth by funding its own pipeline or through acquisitions.
Second, the company recently offered investors an update on its growth plans, and things look positive. J&J says it aims to launch more than 20 new treatments and more than 50 expanded indications of current products by 2030. And more than 10 products could deliver more than $5 billion in peak year sales. As for medtech, the company says it expects to generate one third of sales from new products by later this decade -- and it continues to invest in high-growth areas such as interventional cardiovascular and robotics.
All of this should help J&J achieve an enterprise compound annual growth rate of 5% to 7% from 2025 through 2030.
Meanwhile, J&J shares today trade for only 15x forward earnings estimates – a great deal for a stock set to deliver passive income and earnings growth over time.
