Make money without even trying: That's what passive income is all about. But good investment alternatives are required to make this "easy" money.
Three Motley Fool contributors believe they have found some great dividend stocks that fit the bill. Here's why they think Abbott Laboratories (ABT 1.08%), AbbVie (ABBV 1.30%), and Johnson & Johnson (JNJ 1.19%) are magnificent stocks that are passive income machines.
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A dividend stock you can buy and (almost) forget about
David Jagielski (Abbott Laboratories): When picking a top dividend stock to hold in your portfolio, you want to consider a company that not only has a solid track record for making payouts but that also has solid fundamentals. The former helps demonstrate its commitment to rewarding shareholders, while the latter ensures that it has the capacity to continue doing so.
Abbott Laboratories has been paying a dividend going back more than 100 years, to 1924. And it has also been increasing its dividend annually for more than 50 consecutive years. Investors have become accustomed to not only receiving a dividend from this stock every quarter, but also seeing their dividend income rise over the years.
The diversified healthcare company currently pays its shareholders a quarterly dividend of $0.59, and that has risen by 146% over the past 10 years. That averages out to a compound annual growth rate of 9.4%. The stock's 1.8% dividend yield may look modest, but the likelihood of further rate hikes is why it can make for a great long-term buy.
What's also attractive about Abbott's business is that it has diverse operations, which makes it less dependent on any one particular business unit. It has segments related to nutrition, diagnostics, pharmaceuticals, and medical devices.
The company has generated stable and solid results, with its top line coming in at more than $40 billion in each of the past four years. And with strong free cash flow of $6.7 billion over the trailing 12 months (more than the $3.9 billion it paid out in dividends during that time frame), it's in an excellent position to continue growing its dividend for the foreseeable future.
A drugmaker that's proved its resilience
Keith Speights (AbbVie): Abbott Labs spun off AbbVie as a separate entity in 2013. It inherited its parent company's outstanding track record of dividend increases and has kept the streak going. The big drugmaker has increased its dividend for an impressive 53 consecutive years.
Even better, AbbVie's dividend program is quite generous. The company's forward dividend yield stands at 3.64%.
What I like most about AbbVie, though, is its resilience. After the spinoff, management knew that it was only a matter of time before key patents for its autoimmune disease drug Humira would expire. The company was heavily dependent on Humira's sales.
However, AbbVie invested heavily in research and development. It made strategic acquisitions, notably including the 2020 purchase of Allergan. Those efforts paid off.
Today, the company's lineup features multiple growth drivers that more than offset Humira's sales decline that began after the drug lost U.S. patent exclusivity in 2023.
AbbVie's greatest new success stories are its two successors to Humira, Rinvoq and Skyrizi. These two autoimmune disease drugs should rake in combined sales of $31 billion by 2027, more than Humira achieved at its peak.
A seasoned dividend payer for all seasons
Prosper Junior Bakiny (Johnson & Johnson): In the past few years, Johnson & Johnson's solid performance has been somewhat overshadowed by its legal and regulatory issues. More recently, the threat of tariffs has created new challenges to overcome. Despite these problems, Johnson & Johnson remains an excellent passive income stock. Here are three reasons:
First, it's a leading healthcare company that makes most of its money thanks to its pharmaceutical business, although its medical device unit also contributes significantly. Healthcare is a defensive industry that performs relatively well even during challenging economic times. So, even if a recession eventually hits, as some investors fear, well-established and consistently profitable healthcare players like Johnson & Johnson will be much more resilient than those in most other industries.
Second, it has a rock-solid financial foundation. As evidence of the strength of its balance sheet, the drugmaker has an AAA rating from S&P Global. That's the highest available -- even higher than the U.S. government's.
Third, Johnson & Johnson has an impeccable dividend track record. The company has increased its payouts for 62 consecutive years, making it part of the elite clique of Dividend Kings. It might be facing some headwinds, but its solid business and expertise in the healthcare sector, coupled with significant financial flexibility, make it likely to overcome these obstacles. Meanwhile, the company should continue growing its dividends for many more years. That's why the stock is an excellent pick-up for income-seeking investors.
