Investing an amount of $3,000 in each of these three "Dividend Kings" could potentially yield around $280 in passive income by 2025.
Passive income isn't just a pipe dream; it's an achievable reality with a diverse array of strategies. From real estate to stocks, there's an abundance of opportunities to earn while you sleep, or at least while you're busy pursuing other passions.
One lucrative method of generating passive income is through dividends. Dividend-paying companies share a portion of their profits with shareholders, creating an income stream without the need to sell your shares. This income can increase annually if the company consistently boosts its payouts, a trait exhibited by exceptional performers known as Dividend Kings.
Three standout Dividend Kings are Illinois Tool Works (ITW), Stanley Black & Decker (SWK), and Target (TGT). Investing $3,000 in each stock may bring about $280 in passive income in 2025 based on the current yields. However, these figures are subject to change as the companies may continue raising their payouts.
Let's dive into why these stocks are promising picks for the new year.
An Industrial Giant with a Winning Formula
Illinois Tool Works, or ITW, has taken a hit with a 8% decrease in the past month. The dip presents an attractive opportunity to acquire shares in this prosperous company.
The industrial sector is witnessing a phase of split-ups with companies favoring standalone business units. Although the conglomerate model may not be popular, it can be successful for companies like ITW. This veteran player in the industry thrives with seven business segments: automotive, food equipment, test and measurement and electronics, welding, polymers and fluids, construction products, and specialty products.
ITW's clever approach enables each segment to benefit from customer-driven innovation, strong operating margins, and steady growth. The segments rarely contribute an overly significant share to the overall business, allowing the company to hedge against potential risks.
ITW's ambition is to hit a 30% operating margin, setting the stage for a robust 9% to 10% annual EPS growth and 7% annual dividend increases. With a 2.3% yield, a 23.9 price-to-earnings (P/E) ratio, and a forward P/E of 22.2, ITW makes an appealing Dividend King purchase in 2025 for a long-term investment.
By committing $3,000 to ITW, you may potentially earn around $69 in passive income in 2025.
A Turnaround Play Offering High Yield
Stanley Black & Decker has been a rollercoaster ride for investors in recent years, marked by numerous dips rather than rises. The stock now hovers near its 52-week low and has dropped over 60% from its all-time high.
The toolmaker is conducting a slow-paced transformation, with progress being made but the process extending longer than anticipated. During the pandemic, the company's sales soared as DIY enthusiasts stocked up on home improvement projects, but the surge was misinterpreted as a lasting trend. This led to the company's overextension and vulnerability to correction.
Stanley Black & Decker has made significant strides reducing costs and continues increasing its annual payout to maintain its dividend streak. The plunging stock price, coupled with ongoing raises, has elevated the stock's dividend yield to approximately 4.1%. Keep in mind that this was a stock with a yield of around 2% before the pandemic.
Stanley Black & Decker's resurgence depends on its ability to successfully transform its business and endure potential volatility. If you believe in the company's recovery and are willing to tolerate the ongoing volatility, the yield could be a tempting incentive to acquire shares in 2025.
Pouring $3,000 into Stanley Black & Decker could fetch you $123 in passive income in 2025.
A High-Yield, Cash Cow Stock
Target's stock decline mirrors broader market trends in consumer spending. However, strong performers such as Walmart and Costco Wholesale have reached record highs as they consistently deliver value to customers, driving both staple and discretionary categories.
Target's execution has been less than stellar in recent years, as seen by the stagnant sales growth and wide margin swings. The value investor in you might be questioning whether the stock's decline is justified, as it currently boasts a P/E ratio of 14.4, a forward P/E ratio of 14.3, and a yield of 2.9%.
Despite a projected decrease in earnings, Target has the financial muscle to keep raising its dividend. Its ability to build on e-commerce and curbside offerings and preserve the appeal of in-store experiences make it an alluring Dividend King candidate in 2025, irrespective of market volatility.
Injecting $3,000 into Target may bring around $87 in passive income in 2025.
- Passive income through dividends can be achieved by investing in Dividend Kings, such as Illinois Tool Works (ITW), Stanley Black & Decker (SWK), and Target (TGT).
- Investing $3,000 in each of these Dividend Kings could potentially generate up to $280 in passive income in 2025, assuming the current dividend yields and potential payout increases.
- Illinois Tool Works (ITW) is a promising Dividend King pick due to its diverse business segments, strong operating margins, and ambition to reach a 30% operating margin, which could lead to robust EPS and dividend growth.
- Despite experiencing a 8% decrease in the past month and having a high price-to-earnings ratio, ITW's 2.3% yield and potential to generate around $69 in passive income in 2025 make it an appealing long-term investment for passive income seekers.
