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Generating passive income is a core aspect of my financial strategy. My goal is to eventually produce enough recurring investment income to cover my basic living expenses.
I try to make progress toward that goal each month by investing more money in income-generating investments like high-yielding dividend stocks. This March, I plan to buy several, including PepsiCo (NASDAQ: PEP), Johnson & Johnson (NYSE: JNJ), and Prologis (NYSE: PLD). Here's why I can't wait to add to my position in this income-generating trio.
Taking another sip of this elite dividend stock
PepsiCo currently has a 3.5% dividend yield, more than double the S&P 500's 1.3%. Because of this, every $100 I invest in PepsiCo stock will produce about $3.50 of annual dividend income, compared to around $1.20 of dividends per year from an S&P 500 index fund.
The beverage and snacking giant has a phenomenal record of paying dividends. It recently announced plans to increase its payout by another 5%, marking the 53rd year of consecutive annual dividend increases. It keeps the company in the elite group of Dividend Kings, companies that have increased their payments for 50 or more years in a row.
PepsiCo is in an excellent position to continue increasing its high-yielding payout. Its long-term target is to organically grow its revenue at a 4% to 6% annual rate, which should drive high-single-digit earnings-per-share growth. Meanwhile, it has a strong balance sheet that allows it to enhance its growth rate through acquisitions. For example, it has acquired PopCorners, Sabra, and Siete in recent years, adding new sources of growth.
A very healthy dividend stock
Johnson & Johnson pays a 3%-yielding dividend. The healthcare giant also has a strong record of dividend growth. Last year was the 62nd straight year it had increased its dividend.
The innovative medicine and medical technology company backs its payout with one of the healthiest financial profiles around. The nearly $400 billion healthcare behemoth (by market cap) ended last year with only $12 billion of net debt ($37 billion of debt and $25 billion of cash and equivalents). Meanwhile, it produced $20 billion in free cash flow last year (easily covering its $11.8 billion dividend outlay).
Johnson & Johnson has maintained a very healthy financial profile, even as it has invested heavily in its continued growth. Last year, it spent $17.2 billion in research and development to discover and test new therapies and medical technologies. It also deployed, announced, or committed $32 billion to inorganic growth opportunities (including agreeing to buy Intra-Cellular Therapies for $14.6 billion last month). These investments will help grow its revenue and cash flow, enabling Johnson & Johnson to continue increasing its high-yielding dividend.