If You Enjoy Passive Revenue, You'll Adore These 3 Dividend Shares.
If You Enjoy Passive Revenue, You'll Adore These 3 Dividend Shares.
Passive income can be efficiently generated via dividends, regardless of the stock market's fluctuations. The companies that pay out dividends, especially to long-term investors, provide a blend of dividend income and capital gains. However, there are certain aspects to consider when investing in dividends.
Some individuals prefer stable and heavily dependable companies, such as Coca-Cola (KO -1.13%), or Air Products and Chemicals (APD 0.45%). On the other hand, others might be drawn toward companies with higher risk and reward potential, like Diamondback Energy (FANG 0.68%), which offers a variable dividend that could fluctuate based on business performance.
Here's why these dividend stocks are worth purchasing now.
Coke's demand is slipping
**Daniel Foelber (Coca-Cola):** Despite strong growth in the broader indexes, Coca-Cola stock has seen a significant decrease by approximately 12% over the last month - a substantial fall for such a dependable blue-chip company.
Coca-Cola's decline can be attributed to two primary reasons. The first is a less than impressive recent earnings report. The second is the burden on the consumer staples sector as several sector leaders have reported weak results, putting pressure on the sector as a whole.
Coca-Cola's latest report showed declining volumes, indicating a slowing demand, which in turn suggests that the company could face a challenging 2025 if consumer spending remains uncertain. Nonetheless, Coca-Cola remains on track to deliver 10% non-GAAP (adjusted) organic revenue growth and a 5% to 6% non-GAAP earnings growth in 2024, thanks to its ability to execute in a challenging environment.
Coca-Cola initiated several successful marketing campaigns in 2024, primarily around seasonal beverages. Additionally, the company has honed its expertise in marketing and developing brands that become staples in its beverage portfolio, such as Topo Chico.
Coca-Cola purchased sparkling water company Topo Chico for $220 million back in 2017. According to its recent earnings report, year-to-date Topo Chico volumes have increased tenfold since its pre-acquisition levels in 2016.
Topo Chico is a shining example of Coca-Cola recognizing the potential in a high-quality regional brand and transforming it into a market leader with exponential growth. Although Coca-Cola may have overpaid for other brands like Bodyarmor and Costa Coffee, overall, it excels at sticking to its core competency of non-alcoholic beverages and nurturing existing brands while taking calculated risks on emerging brands.
The sell-off in Coca-Cola presents an unmissable opportunity for patient investors. With a 3.1% yield and 62 consecutive years of dividend increases, Coca-Cola is a passive income powerhouse that investors can rely on for a steady stream of dividend income for decades to come.
Air Products delivers a consistent dividend that will provide peace of mind for income investors
**Scott Levine (Air Products & Chemicals):** Achieving long-term investing success often depends on portfolio diversification, with reliable dividend-paying stocks like Air Products, alongside its 2.3% forward-yielding dividend, serving as an intelligent way to grow wealth. For over 40 consecutive years, Air Products has raised its dividend, displaying a strong commitment to rewarding shareholders.
From energy to food and beverage to biotech (Air Products serves more than 30 industries, in fact), a variety of industries rely on the industrial gases that Air Products offers. This diversification reduces risk as any single industry not experiencing a significant downturn can be offset by another sector's growth. Air Products generates steady cash flows, which it can in part return to shareholders via dividends.
The company's management places great importance on maintaining the company's financial health in relation to dividends, as evidenced by its consistent 62.3% payout ratio over the past 10 years. Moreover, for several years, the company has produced robust cash flow from operations, which supports its dividend payments.
Individuals with concerns about the sources of future growth for the company may find those concerns alleviated after reviewing its impressive backlog: over $19.5 billion.
Diamondback's Permian Basin remains the most productive oil-producing region in the U.S.
**Lee Samaha**(Diamondback Energy): As a self-proclaimed "premier Permian pure-play," Diamondback Energy aims to attain industry-leading status in the Permian Basin, courtesy of its position as the largest oil-producing region in the U.S. (nearly 5 times more production than the Bakken region) and its accelerated growth rate.
Recently, Diamondback Energy completed a merger with Permian-focused Endeavor Energy, which boosted its exposure to the region and created promising synergy opportunities. The company's strong cash flow and relatively low valuations in the energy sector enabled it to purchase energy assets at advantageous prices.
When it comes to the company's financial returns (Diamondback plans to give back 50% of its quarterly disposable cash to shareholders), it pays out an annual dividend of $3.60. This translates to a yield of roughly 2% at the current share price. Furthermore, the price of oil required to maintain operations hovers around $37 per barrel.
However, it's worth noting that Diamondback also provides an adjustable dividend. With the current oil price far surpassing $37 and the integration of Endeavor set to enhance its financial resources in the promising Permian area, investors can anticipate a substantial boost over the $3.60 annual dividend in the upcoming years.
While Coca-Cola's stock has seen a significant decrease due to declining volumes and weak earnings, its 3.1% yield and 62 consecutive years of dividend increases make it an attractive option for patient investors seeking a reliable source of passive income. On the other hand, investing in Diamondback Energy, a company with a variable dividend, could provide higher rewards but also higher risks, as its dividend is tied to the performance of its oil business in the Permian Basin.