Some investors enjoy a more active approach to owning stocks, keeping tabs on the market's daily ins and outs, and trading on a relatively regular basis in an effort to buy at lows and lock in profits at highs.
Other investors, however, are less interested in activity, and are content to simply buy and hold without frequent check-ins on their portfolio. Dividends tend to feature prominently as part of their plan, which (ironically) often yields better net returns than those achieved by their more active counterparts.
If the latter style sounds more like you, here's a rundown of three stocks that can sustain decades of passive income, whether you want to spend that cash flow or just reinvest those dividends in more shares of the stock that's paying them.
1. Bank of America
You're probably aware that Warren Buffett's Berkshire Hathaway has been scaling back its stake in Bank of America (BAC 1.54%) in a big way. All told, as of the latest count Berkshire's sold a little over 90 million shares of the bank -- roughly one-tenth of its total position -- within just the past couple of weeks, collecting proceeds of nearly $4 billion. Buffett's growing disinterest on owning this bank is understandably concerning.
However, there may not be nearly as much to the matter as is being suggested. Capital-gains tax rates could be rising soon, and having grown to become Berkshire's second-biggest position, Buffett may simply be thinking strategically about ways to cost-effectively balance the portfolio. In this same vein, Berkshire's also recently sold a bunch of its stake in Apple, which is by far its single biggest position.
NYSE: BAC
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Just because the Oracle of Omaha is scaling back his stake in BofA, however, doesn't mean it's not a good fit for your portfolio. It's still a particularly strong dividend stock, currently boasting a forward-looking dividend yield of nearly 2.8%.
And that's based on a dividend, by the way, that's grown every year since 2016 at an average annualized growth rate of more than 20%. This year's increase is more than 8% better than the prior quarterly payout. Moreover, given that the bank is still earning far more per share than it's paying out (last quarter's profit of $0.83 per share versus its new quarterly per-share payment of $0.26), there's room and reason to believe this dividend and dividend growth is protected even if the worst-case economic scenario is realized.
2. Realty Income
Realty Income (O +0.56%) may not be a household name. However, there's a good chance you or someone living in your household regularly visits a Realty Income-owned property.
How's that? Realty Income is a real estate investment trust, or REIT, for short. That just means it owns rental properties and passes the majority of its rent-driven profits along to shareholders. There are all sorts of REITs, ranging from hotels to shopping malls to apartment buildings. Realty Income's focus, however, is retail properties. It owns over 15,000 strip malls, stand-alone store sites, and even warehouses and distribution centers rented out to consumer-facing companies.
It's a concerning specialty -- at first. Retailers everywhere are seemingly struggling not just with online competition but an oversaturated market thanks to aggressive expansion from the late '80s through the early 2000s.
NYSE: O
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Realty Income is largely immune from the retail horror stories you're still regularly reading about, though, if its current occupancy rate of 98.8% is any indication. This REIT's tenant list is almost exclusively the nation's most resilient retailers. Some of its top renters are Dollar General, Walgreens, and FedEx. These are companies with the resources to scope out a site in painstaking detail, only committing to a long-term lease if they're certain they'll be able to make their required rent payments.
That's what the REIT's dividend history suggests, anyway. Not only has Realty Income paid a dividend every month (yes, a monthly dividend) for 649 consecutive months, but it has upped that payment in each of the past 107 quarters. The current yield stands at over 5.2%.
3. PepsiCo
Finally, add PepsiCo (PEP 3.34%) to your list of long-term passive income prospects while its forward-looking dividend yield is just over 3.1%. Investors invariably compare this ticker to The Coca-Cola Company, and rightfully so. Both are major names in the beverage business, after all. They're natural competitors with comparable operations and seemingly similar cost structures.
These two companies, however, are actually as different as they are alike. Whereas Coca-Cola outsources the production and distribution of its products to third-party bottlers who simply buy flavored syrups from the company, PepsiCo owns most of its own bottling operations and handles its own distribution.
Although PepsiCo's model ultimately results in lower profit margin rates, it also gives PepsiCo full control of all the important aspects of its business. That can be a huge strategic advantage. PepsiCo is also parent to snack chip brand Frito-Lay, which consists of Lay's, Cheetos, Fritos, Doritos, and others, diversifying its revenue stream.
NASDAQ: PEP
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Neither is the key reason an income-minded investor might want to choose PepsiCo over Coca-Cola, though. Rather, PepsiCo stock's edge over Coke's is a higher yield and stronger dividend growth. Coca-Cola's current forward-looking dividend yield is only 2.8%, and over the course of the past 10 years the company has only upped its quarterly payment at an annualized pace of less than 5%. PepsiCo's dividend has grown by an average of more than 7% for the same time frame.
Sure, Coke's got a longer track record of uninterrupted annual dividend growth at 62 years. With 51 consecutive years of yearly dividend growth, though, PepsiCo's almost just as impressive in terms of consistency.
