When it comes to investing for passive income, one of the key considerations is the durability of the dividends being paid out by a company or exchange-traded fund (ETF). While no one can predict the future with certainty, there are certain criteria that can help investors assess the likelihood of receiving a lifetime of passive income from their investments.
One important factor to consider is a company’s history of paying and raising its dividend. Companies like American States Water (AWR) and Illinois Tool Works (ITW) are both considered Dividend Kings, having paid and raised their dividends for at least 50 consecutive years. This track record demonstrates their ability to grow earnings and pass along profits to shareholders through dividends.
American States Water, a water utility stock, has been consistently increasing its dividend for 70 consecutive years. The company operates primarily in regulated markets, providing a steady stream of revenue and enabling management to plan for future capital expenditures and dividends. With a forward-yielding dividend of 2.2%, American States Water is a solid choice for income investors looking to bolster their passive income streams.
Illinois Tool Works, on the other hand, operates as an industrial conglomerate with seven different segments. Despite some cyclicality in its segments, ITW has been able to maintain strong operating margins and revenue growth. The company’s success with the conglomerate model sets it apart from other industrial players, and its consistent performance over the last five years has earned it a premium valuation. While ITW may seem a bit pricey, its high-quality business and capital return program make it a great choice for long-term dividend investors.
For investors looking for a more diversified approach to high-yield investing, the JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) offers exposure to growth stocks while generating income primarily from equity-linked notes that sell call options on the Nasdaq-100. This unique strategy allows the ETF to benefit from market volatility while providing investors with a monthly distribution and a handsome dividend.
In conclusion, assessing the durability of dividends is crucial for investors seeking passive income. Companies like American States Water and Illinois Tool Works, along with ETFs like JPMorgan Nasdaq Equity Premium Income, offer opportunities for investors to build a portfolio that can provide a lifetime of passive income. By considering factors such as dividend history, business model, and investment strategy, investors can make informed decisions to secure their financial future.
