"Passive income" sounds nice, doesn't it? You simply invest your money and the cash rolls in. Of course, nothing is that simple when it comes to finances, but there is a lot to be said for income earned regularly with minimal effort.
There are many stocks that have long-term records of steady, predictable dividend payments. The field narrows somewhat when you push the past-performance window back by decades, and then further narrow it to those that have kept up with or even outpaced the greater market -- and that you can reasonably expect to do the same for decades to come.
Three to consider are Altria Group (MO -0.37%), Realty Income (O -0.17%), and the Fidelity 500 Index Fund (FXAIX -0.46%). The chart below shows how much these three stocks have generated in total returns and how much they've increased their dividends since 1988, when the Fidelity index fund was introduced.
MO Total Return Level data by YCharts
1. Altria Group
"Moving Beyond Smoking" is the mantra dominating the home page of this Dividend King, the former Philip Morris Companies, which changed its name to Altria in 2003. The company remains a major maker of tobacco products --- including Marlboro cigarettes and Black & Mild tipped cigars -- through its Philip Morris USA division.
It is also a major producer of smokeless tobacco, nicotine pouches, and vaping products, as well as the owner of a significant chunk of Anheuser-Busch InBev/NV, the global beer industry leader, and Canadian cannabis grower Cronos Group.
It's increased its dividend for 54 straight years, a testament to the company's commitment to shareholder returns through dividends and the enduring appeal of the products it profitably produces and sells worldwide.
2. Realty Income
Realty Income isn't just committed to increasing it dividend as a management strategy -- as a real estate investment trust (REIT), it's required to pay out at least 90% of its taxable income as dividends each year. Boosting the payout for 104 straight quarters gives credence to Realty Income's branding as "The Monthly Dividend Company."
Meanwhile, a growing portfolio of more than 13,250 properties occupied by about 13,000 clients, the bulk of them big-name retailers in recession-resistant businesses, should keep the rent flowing and the dividends growing for the foreseeable future.
3. Fidelity S&P 500 Index Fund
Fidelity's S&P 500 Index Fund is a mutual fund structured to mirror the performance of the S&P 500, offering a long-proven, low-cost way to invest in a diversified collection of large-cap U.S. companies (currently including Altria and Realty Income).
This venerable index fund has provided an average annualized total return of 10.4% during the 35 years it's been in business. Over that time, the S&P 500 itself has paid back 10.5% per year.
That's a pretty close match, and while not all members of this club pay dividends, this Fidelity fund is an excellent way to capture resilience and growth potential as a cornerstone of a passive-income portfolio.
Why choose just one?
So which of these three would be best? A big index fund like the Fidelity 500 is hard to beat over the long run when it comes to total return, and that may trump the other two if you have a long investment window, meaning a lot of years to retirement.
On the other hand, we're talking specifically about passive income here. If that's what matters most, consider that Altria is traditionally one of the highest-yielding members of the big index, and is currently yielding about 9.7%. Realty Income is now at about 5.3%, and the Fidelity 500 fund just under 1.5%, which is in line with the S&P 500 average yield.
But since diversification is important at all stages of your investment journey, you certainly don't need to choose just one. All three of these stocks can pay dividends now and probably for decades to come, helping you build wealth while you pay the bills along the way.
