3 passive income powers that must be purchased before the end of the year

3 passive income powers that must be purchased before the end of the year

when Standard & Poor’s 500 rise significantly during the year, it is easy to miss the value of a reliable dividend stock. After all, what good is a 3% return if the market goes up almost 20%?

But the value of quality dividend stocks isn’t in how they perform during a strong market — they make regular quarterly payments no matter what the market is doing. The best dividend-paying companies take it a step further by increasing their dividends every year, even during recessions. This way, investors can count on an increased income stream when they need it most.

coca cola (Do -0.74%), Clorox (160 -0.19%)And Goal (TGT -1.96%) They have raised their dividend every year for decades. That’s why every stock is worth buying before the end of the year.

A person pushes a shopping cart in a store while using his phone.

Image source: Getty Images.

The Coca-Cola trench was introduced this year

Depending on who you ask, Coca-Cola stock can have an exceptional or mediocre reputation. The easiest criticism is that Coca-Cola is a low-growth stock that underperforms the market and is not worth owning. But Coca-Cola supporters will argue that the company’s record of increasing dividends and buybacks, as well as its wide moat, make it worth owning.

Coca-Cola’s 10-year chart is certainly disappointing. Its trailing 12-month revenue is actually lower today than it was a decade ago. Meanwhile, net income is up just 26% in 10 years and the stock is up just 43% compared to a 150% gain in the S&P 500. However, the consumer staples sector tends to underperform strong bull markets. Coca-Cola’s underperformance isn’t so bad when compared to the sector rather than the S&P 500.

Co chart

KO data by YCharts

The quality of Coca-Cola’s compensation is its history of increasing profits. Coca-Cola is one of the oldest dividend-paying companies, having paid and increased its dividend for 61 consecutive years. Dividends have increased by more than 50% in the past decade alone. Over the past year, Coca-Cola has achieved strong net profit growth thanks to price increases, demonstrating the strength of its brand and its ability to combat inflation.

Investors who care more about preserving capital than raising capital will likely be attracted to Coca-Cola’s positives outweigh its negatives. The trick is to get the stock at a good price. Coke’s price-to-earnings (P/E) ratio of 24 is reasonable compared to the S&P 500. With a dividend yield of 3.1%, now is a good time to buy Coke if it aligns with your financial goals.

It’s time to start evaluating Clorox normally again

Earlier this fall, Clorox stock suffered a rapid and brutal sell-off, largely due to a cyberattack. The stock has recently recovered 22% from its 52-week low. But if you zoom out, the stock is basically flat so far.

Like Coca-Cola, Clorox has a portfolio of strong brands that support stable earnings increases. In addition to the flagship Clorox brand, Clorox has Burt’s Bees, Glad trash bags, Brita water filters, Kingsford charcoal, and more. There is a little more potential growth with Clorox compared to Coke, given the product categories Clorox is in and the fact that Clorox’s market cap is much smaller than Coke’s. But Clorox is still primarily a dividend stock. The stock simply did not fall as it did during the worst of the cyber attack scare.

However, Clorox is a good value. The dividend yield is 3.4%. Although its P/E ratio is currently high, it has achieved significant cost cuts and price increases that pave the way for strong results once Clorox fully recovers from the cyberattack.

The goal is too cheap to ignore

Like Clorox, Target suffered a widespread sell-off that sent the stock trading to around $103 per share. Since November 1, the target has increased by 24.9%. But it is still low in 2023, and down more than 20% in the past three years.

The goal was to deal with inflationary pressures, weak consumer spending on discretionary goods, inventory challenges, and theft. The past few years have been an extremely difficult time to predict buyer behavior, which has gone from a burst of excitement during the pandemic to more conservative today. High interest rates make it more expensive to borrow money and put pressure on consumers to spend within their means.

Unfortunately for Target, this means the holiday season could be a weak one, which is why Target has chosen to keep a lean inventory rather than risk being overly optimistic and then having to implement deep post-holiday sales just to move products off the shelves.

Even after the stock’s recent partial rebound, it still yielded 3.2%. Like Coca-Cola, it is a dividend king with over 50 consecutive years of dividend increases. Target also has more growth potential than Coke or Clorox. It has done an excellent job focusing on its rewards program, curbside pickup, and e-commerce. Its margins are showing signs of improvement, with operating margin last quarter at 5.2%, a huge improvement over last year’s epic margin collapse.

TGT operating margin chart (quarterly).

TGT operating margin data (quarterly) by YCharts

The target is definitely not out of the woods yet. It may take some time before he fully recovers. But the stock is still cheap, trading at a 17.4 P/E ratio. That’s simply too low for a company with Target’s brand strength and earnings record.

Companies you can count on in 2024

Coke, Clorox, and Target are three stocks ideally suited for investors whose financial goals include generating a steady stream of passive income. Each stock yields more than 3%, which is close to the risk-free 10-year Treasury bond rate of 4.2%. Only with stocks do you get the potential reward (and bear the risk) that comes with investing.

High-quality dividend stocks like Coke, Clorox, and Target should prove to be a worthwhile investment that mixes dividend income with capital gains over time.

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