At the time of this writing, the S&P 500 (^GSPC -0.67%) has rocketed upward by 13.3% in the last month -- almost enough to bring it back to where it started the year. That surge has lifted the valuations of many stocks back to lofty levels, but there are still plenty of bargains if you know where to look.
Some income investors on the hunt for deals today may prefer to scoop up shares of high-yielding dividend payers like NextEra Energy (NEE 1.42%) or Target (TGT -0.79%), whereas others may go for an exchange-traded fund (ETF) that holds positions in dozens if not hundreds of stocks -- like the JPMorgan Equity Premium Income ETF (JEPI -0.30%).
Here's why these two stocks and this ETF are great buys now for generating passive income.
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NextEra Energy: A long history of rewarding shareholders
Scott Levine (NextEra Energy): Those looking to procure prodigious passive income may balk at the sight of NextEra Energy stock's 3.2% forward-yielding dividend, but a peek at its financials will reveal why the clean energy company could be a great choice right now.
Operating a portfolio with a generation and storage capacity of about 37 gigawatts (GW), NextEra Energy is one of the leading renewable energy stocks. And with 25 GW of projects in its backlog, NextEra Energy will likely maintain its leadership position for years to come.
Consistently profitable, NextEra Energy grew its adjusted earnings per share (EPS) at a 10% compound annual rate over the past 10 years to $3.43 in 2024. Management, moreover, expects that growth to continue, projecting its adjusted EPS will rise at a 6% to 8% compound annual rate through 2027.
NextEra Energy has hiked its dividend payouts annually for more than three consecutive decades. That type of steadfast commitment to rewarding shareholders doesn't guarantee that its streak will continue indefinitely, but it's certainly worth acknowledging. Also worth recognition is management's expectation that it will hike the dividend by 10% annually through at least 2026.
Circumspect investors who fear the company's financial health is imperiled based on that high-yielding dividend should find their concerns assuaged by the company's five-year average payout ratio of 81% and its investment-grade balance sheet.
The passage by the House of Representatives of the Republicans' spending bill, which slashes clean energy tax credits, provoked a sell-off in NextEra Energy stock, as investors are concerned about the negative effects it will have on the company. But the NextEra has faced other forms of adversity over the past 30 years, and it kept hiking its dividend all the while. Investors, therefore, should certainly monitor Washington's policy changes as they develop, but they are not enough reason on their own to dismiss the company as a potential investment.
Today, shares of NextEra Energy are changing hands at 11.5 times operating cash flow; that's a discount to their five-year average cash-flow multiple of 15. Consequently, this looks like a particularly ideal time to let NextEra Energy stock add some power to your portfolio.
Investors can count on Target's dividend even during challenging periods
Daniel Foelber (Target): Shares of Target -- already down significantly year to date -- tumbled again after the retail giant reported its first-quarter fiscal 2025 results on May 21. Comparable sales fell by 3.8%, and net sales were down 2.9%, but digital comparable sales ticked up 4.7%. However, the more concerning line item was adjusted earnings per share (EPS), which was just $1.30 compared to $2.03 in the prior-year period.
When Target reported fourth-quarter and full-year fiscal 2024 results in early March, management guided for fiscal 2025 net sales growth of 1%, a modest increase in operating margins compared to fiscal 2024, and adjusted EPS of $8.80 to $9.80. But the company's freshly updated guidance calls for a low-single-digit percentage decline in sales and adjusted EPS in the range of $7 to $9. In other words, the high end of its new forecast is now below the median of the guidance range it gave less than three months ago.
Unfortunately, Target investors have grown accustomed to quarter after quarter of disappointing results and steep stock price sell-offs, and the shares are now around their lowest level in over five years.
As you can see in the chart, Target's sales have been declining gradually for a couple of years, while its operating margins are below their pre-pandemic levels. Meanwhile, peers like Walmart (WMT 0.62%) have enjoyed steadily rising sales and strong margins. And Walmart's stock is hovering around an all-time high.
There's no denying that Target's key financial metrics are moving in the wrong direction. Because the stock market is forward-looking, investors who are worried that Target's pattern of negative growth is here to stay may prefer to hit the sell button.
But folks who believe Target's problems of lower foot traffic are solvable may want to consider scooping up shares of this beaten-down dividend stock. For starters, Target is still a highly profitable company. If it achieves the midpoint of its updated full fiscal-year guidance, it would sport an adjusted price-to-earnings ratio of 11.9 -- which is dirt cheap. Furthermore, Target's weak results have stemmed from a series of blunders, such as inventory mismanagement, diluting its brand by alienating key portions of its customer base, and failing to attract foot traffic with promotional efforts and loyalty rewards. Some of these issues are easier to solve than others. But given its current valuation, the company would only have to produce mediocre results for the stock to potentially recover.
Throw in 53 consecutive years of dividend raises and a whopping 4.7% yield, and there's a sizable incentive to buy and hold Target stock for passive income while management attempts to turn the business around.
This ETF will suit investors looking for monthly income
Lee Samaha (JPMorgan Equity Premium Income): Some investors value a secure monthly income, the preservation of capital during downturns, and the ability to obtain upside exposure to the equity market. If those are your criteria for investment, or you want such an investment to provide some balance to your portfolio, then the JPMorgan Equity Premium Income ETF is worth a look.
A cursory glance at its performance so far in 2025 reveals why. The ETF outperformed during the market downturn (on a total return basis that includes distributions) and provided a reliable source of monthly income. (Its current yield is 7.8%.) Its strengths in the preservation of capital are important because you might need to liquidate this holding during a market downturn.
The ETF's structure (up to 80% in equities and up to 20% in equity-linked notes that sell call options on the S&P 500) means it's highly likely to underperform in a bull market. For reference, selling call options is a strategy that tends to make money (by picking up premiums) when the asset in question declines, but it loses money when the asset rises.
Still, those balancing qualities make the ETF an attractive choice for those looking for a reliable income investment.
