Investors who want to set themselves up with a huge stream of passive income from dividend-paying stocks have two basic options. You could aim for stocks that offer high yields up front or look for smaller yields from companies that can grow their payouts.
The first option rarely works out over time, because dividend-paying stocks rarely offer high yields until investors are worried about the underlying business and its ability to sustain its commitment.
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The stocks on this list don't offer the highest yields, but they are far above average. Plus, they have long histories of consecutive annual dividend increases.
With strong advantages to keep the competition from eating into their profit margins, these stocks could keep paying and raising their dividend payouts for as long as you care to hold them.
Altria Group
Cigarette sales have been declining for decades, but the value of Altria Group's (MO 1.19%) Marlboro brand in the U.S. keeps rising. Strict regulations that make it impossible to build new brands make it easy for tobacco giants to raise prices that offset declining volumes.
NYSE: MO
Key Data Points
By Altria's estimates, cigarette volumes in the U.S. declined by 8% during the first nine months of 2023. With price increases and rising sales of non-combustible products, though, total revenue fell just 1.4% year over year. By lowering its outstanding share count through buybacks, adjusted earnings per share were able to rise by 3.3% over the same time frame.
Altria isn't relying entirely on the Marlboro brand's pricing power for growth. Earlier this year, the company grew its smoke-free portfolio with the acquisition of NJOY, which markets the only pod-based e-vapor product with marketing authorization from the U.S. Food and Drug Administration.
At recent prices, Altria offers a 9.4% dividend yield that is rising steadily. This summer, the company raised its dividend payout for the 58th time in 54 years. The 4.3% raise wasn't enormous, but it's more than enough to outpace inflation over the long run.
Realty Income
Realty Income (O +0.70%) is a leading real estate investment trust (REIT) that owns over 13,000 buildings in the U.S. and abroad. At recent prices, it offers a 5.4% yield, and investors can be fairly confident about their payouts rising in the quarters to come. In December it raised its monthly payout for the 123rd time since its initial public offering in 1994.
NYSE: O
Key Data Points
With a long track record of success, Realty Income boasts an A3 credit rating from Moody's that keeps borrowing costs much lower than its smaller peers. This REIT leases properties to hundreds of retail clients but leans toward dollar stores, pharmacies, and other businesses that resist e-commerce competition. Its largest tenants also tend to perform well during economic downturns.
With an already enormous portfolio and relatively low borrowing costs, Realty Income could consolidate a large addressable market. In the U.S., where opportunities to consolidate are lowest, there are a dozen publicly traded net lease REITs that account for less than 5% of the addressable market. Conditions are even more advantageous in Europe, where just two publicly traded net lease REITs account for less than 1% of the addressable market.
Coca-Cola
With 61 years of consecutive annual dividend raises under its belt, The Coca-Cola Company (KO +0.74%) is arguably the most reliable dividend payer on this list. At recent prices, the stock offers a 3.1% dividend yield.
NYSE: KO
Key Data Points
The popularity of sugary sodas might be on the decline in your neighborhood, but worldwide it's still on the rise. Trademark Coca-Cola case volume grew 2% year over year in the third quarter.
Like Altria, Coca-Cola leverages the strength of its brands to support price increases its less popular peers can only dream of. This is how the company was able to grow total third-quarter revenue by 8% year over year, or about four times the pace of overall case volume growth.
Pricing power and economies of scale make Coca-Cola's business a very profitable one. The company recorded $10.2 billion in free cash flow over the past 12 months but needed just 77% of this sum to meet its dividend obligation. At this level, the company should have no trouble raising its dividend payout in line with the growth rate of its overall business.
