Investing for passive income can be a rewarding strategy. Some companies pay you their profits in the form of dividends, which can cover your living expenses, or you can reinvest them to buy more shares.
Dividends are a cash expense for companies, so good dividends come from profitable companies that grow steadily over time. Here are five dividend-paying stocks with proven track records and easy-to-understand dominant companies, making them perfect for the beginner dividend investor.
Famous beverage giant Coca Cola (KO -1.97%) is one of the stocks best known to retail investors, and for good reason. Distributing Coca-Cola’s products around the world puts its sodas, water, teas and coffees in so many stores and restaurants that most consumers have almost certainly enjoyed one of Coca-Cola’s beverages.
You can see in the chart above how Coca-Cola’s business has remained resilient over time, including restructuring in the 2010s. The company’s dividend has been paid and increased for 60 consecutive years, providing investors a 2.8% dividend yield they can trust. Its 71% payout ratio means investors should have no problem counting on future dividends; annual revenue growth of between 4% and 6% is management’s long-term objective.
2. Procter & Gamble
Investing in the products you use every day can be a great investment strategy, which has proven true with Procter & Gamble (PG -1.92%). The company’s household products include brands such as Bounty, Old Spice, Febreze and hundreds of others. Like Coca-Cola, consumers buy Procter & Gamble products regardless of the state of the economy because people generally won’t cut sanitation or cleaning from their budget.
You can see it from the company’s financial statements above: Procter & Gamble’s 66-year dividend growth streak makes it one of Wall Street’s longest-serving dividend payers. With a dividend payout ratio of just 62% and $8 billion in cash, the company’s 2.5% yield is a dividend investors can count on.
Notice a theme here? This list features companies whose products are entering the daily lives of consumers around the world. industrial conglomerate 3M (MMM -1.92%) isn’t as obvious as the first two, but the same lesson applies. The company’s products are used in every industry around the world, from adhesives for manufacturing products to Post-it notes used in the office to N95 masks used during the COVID-19 pandemic.
3M has increased its dividend for the past 64 years, enduring both good and bad economies as an industrial company. It sells over 60,000 products, which means it never lives or dies by a single company. Investors can enjoy a dividend yield of 4.1% and the dividend payout ratio is 67% of cash flow, which likely means the payout is secure for the foreseeable future.
4. Johnson & Johnson
Health is one of the most critical aspects of society and an industry whose growth is virtually guaranteed as humanity strives to live longer and healthier lives. Johnson & Johnson (JNJ -1.38%) plays a part in it; from Tylenol to wound dressings, its consumer products, medical devices and pharmaceutical drugs are sold worldwide.
Johnson & Johnson is one of the only companies to have a AAA credit rating from the major credit bureaus, bolstering a dividend raised for 60 consecutive years. You’ll be hard-pressed to find a stock that pays a more reliable dividend, and its 2.5% yield is nothing to sneeze at. The company will soon divest its consumer products to a new company, which could create additional shareholder value.
Most people love a guilty pleasure and a chain restaurant McDonald’s (MCD -1.87%) has been making cheap, delicious burgers since the 1950s. Today, the company is an international food giant with 38,000 locations in more than 100 countries. McDonald’s is a franchise business that sells its brand rights to restaurant owners, who pay the company rent on the building and royalties on sales.
The franchise model allows McDonald’s to turn a profit, paying out a legendary dividend collected over the past 47 years. The 2.2% dividend yield might not knock you down, but McDonald’s is one of the most lucrative stocks of all time, with lifetime total returns of over 93,000%, dividends reinvested. As long as people are enjoying a cheap guilty pleasure, the company could keep delivering.
A key to take away
These companies certainly aren’t offering shiny new technology, but their products are things you see in everyday life, are simple to understand, and have been proven for decades. For investors who are just beginning their passive income journey, these stocks can be a staple you can rely on.