Investing in dividend stocks can be a great strategy for those looking to generate reliable passive income, which removes some of the risk and stress associated with investing for pure appreciation. Dividend stocks must be thoroughly researched, but many pay strong dividends and generate enough free cash flow and earnings to continue to pay and raise their dividends for many years to come.
A great way to find strong dividend companies is to look through Dividend Kings, which are companies that have paid and increased their annual dividends for at least 50 years. If you want to generate $20,000 in passive income, invest $35,000 in these two Dividend Kings evenly and wait 10 years.
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Altria: A dividend as tried and true as tobacco
You may not have heard of Altria Group (MO 0.45%), but you've likely seen or heard about its products. The company is a longtime owner of tobacco products, including cigarettes and smokeless tobacco products that have gained in popularity. Brands owned by Altria include Philip Morris USA, John Middleton, Copenhagen and Skoal.
The stock has also had a strong year and is beating the market, up 25% year to date (as of Sept. 9). The big driver this year is the company's tobacco-leaf-free on! nicotine pouches, which, in the second quarter of this year, saw shipment volumes increase by over 26% year over year, a clear standout in its oral tobacco product line. Altria is guiding for adjusted earnings-per-share (EPS) growth of 3% to 5% from 2024, and continues to generate strong free cash flow.
Altria has paid and increased its quarterly dividend for an astounding 55 years. Not only does the company have an incredibly strong track record, but it also has an incredibly high trailing-12-month dividend yield of close to 6.5%. Over the past 12 months, Altria had a free-cash-flow yield of nearly 7.9%.
Annualized dividends at the company are now $4.24 per share, while Altria is guiding for adjusted EPS of $5.40 at the midpoint of management's guided range, meaning the company is paying out about 79% of its adjusted EPS. All of this bodes well for dividend sustainability.
Target: A staple retail store that's been dealing with challenges
Target (TGT -1.63%) is one of the most well-known retailers in America. While the company has been successful for decades, it's dealt with many challenges this year including shifting consumer preferences, a softening macro environment, and President Donald Trump's tariffs, which have sent the stock down 33% this year. Stores have seen less traffic and less discretionary spending this year. The economy has also dealt with prolonged inflation pressure, a tightening labor market, and slowing consumer spending at times this year.
Additionally, Target is dealing with changing consumer preferences that are focused on more than just price. Chief Commercial Officer Richard Gomez said on Target's most recent earnings call that while consumers are focused on value, they view it differently than they perhaps once did, with more of a focus on quality and style, which is something management wants to lean into.
Trump's tariffs have also resulted in many operational challenges. While Target has worked hard in recent years to lower its exposure to Chinese imports, the company still gets about a quarter of its imports from China and therefore is significantly impacted. Still, Target is guiding for EPS of $8 to $10 in its fiscal year 2025 (ending Feb. 1, 2026), meaning it could generate similar, if not better EPS than it did in fiscal 2024 ($8.86 diluted EPS). Target should also be a good stock to own if the economy does enter into a downturn because it sells many consumer staples products, which most consumers need and won't cut out of their budgets, regardless of what happens to the economy.
Target has paid and raised its quarterly dividend for 54 straight years and has a strong dividend yield of about 5%. Meanwhile, the company's trailing-12-month free-cash-flow yield was over 7%. Through the first six months of fiscal 2025, Target has paid out $2.26 dividends per share and generated $4.32 diluted EPS, so the dividend appears to be quite safe.
