Passive income is a term that holds different meanings for different individuals. In this article, we will define passive income as money earned with minimal effort. While recent spikes in AI-driven stocks, cryptocurrencies, and meme stocks may give the impression that money can be earned effortlessly, experienced investors understand the importance of being cautious in such volatile markets.
When it comes to investing for yield, dividends play a crucial role in generating low-stress income over the long term. However, it is essential to note that price fluctuations are inherent in any form of stock investing, even when receiving regular dividend payments. In this article, we will explore three stocks that offer passive income potential while also prioritizing profitability, dividend yield, dividend safety, and historical price stability.
How These Dividend Stocks Were Chosen
In selecting these dividend stocks, profitability, dividend yield level, and dividend safety were key considerations. Additionally, a demonstrated history of below-average price fluctuations was crucial. By analyzing the 5-year beta, a measure of stock price volatility, we identified stocks that exhibited between 40% and 80% volatility compared to the S&P 500, even during challenging market conditions such as the pandemic and market turbulence in 2022.
1. Merck (MRK)
Business Overview:
Merck, a pharmaceutical giant established in 1891, is one of the largest companies in the industry. With operations in oncology, acute care, virology, cardiovascular, and animal health, Merck has a robust portfolio of products and collaborative research efforts.
Why MRK Is A Top Choice:
Despite recent price pressure, Merck remains a blue-chip stock with a dividend yield of 3%. The stock’s price trend indicates a potential long-term rebound, offering stability and potential total return. While regulatory changes in the healthcare sector pose a concern, Merck’s recent decline may have already factored in these challenges.
2. Kimberly-Clark (KMB)
Business Overview:
Kimberly-Clark, a consumer staples giant with a history dating back over 100 years, operates in personal care, consumer tissue, and professional segments. Known for brands like Huggies, Kotex, Kleenex, and Scott, Kimberly-Clark has a strong market presence.
Why KMB Is A Top Choice:
As a leader in recession-resistant consumer products, Kimberly-Clark’s market share provides a competitive advantage. Despite trading at 18x earnings, the stock offers long-term passive income potential, with stable pricing comparable to 2016 levels.
3. PepsiCo (PEP)
Business Overview:
PepsiCo, a global beverage and food brand, boasts a diverse product portfolio that includes Frito-Lay, Quaker, Gatorade, and Pepsi. With a strong distribution network and focus on health beverages, PepsiCo is a well-established player in the industry.
Why PEP Is A Top Choice:
PepsiCo’s average yield compared to its sector is offset by its stability and profit margins. While the stock’s price has stagnated, its low-volatility nature and strategic moves in the health beverage category position it as a reliable source of passive income.
In conclusion, while recent market trends may favor high-growth sectors, investors seeking a more stable and sustainable approach to earning income can benefit from a passive income strategy. By focusing on stocks with a history of profitability, dividend safety, and price stability, investors can build a portfolio that generates consistent passive income over the long term.
