Dividends can be a great way to generate income from stocks, no matter what the market is doing. But only if the companies paying the dividends are reliable. That's why Dividend Kings -- or companies that have paid and raised their dividends for at least 50 years -- are so elite.
Raising a dividend even during economic downturns or specific company challenges indicates that a business is financially stable and is growing its earnings over time.
Coca-Cola(NYSE: KO), Kenvue(NYSE: KVUE), and Fortis(NYSE: FTS) are three Dividend Kings that each yield 3% or more. Investing $3,000 into each stock will generate $327 in annual passive income based on each company's current payout, although you can expect the dividend income to grow over time -- so long as each company continues raising its payout.
Here's why all three stocks are worth buying now.
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Coke is a passive income powerhouse that's hiding in plain sight
Daniel Foelber (Coca-Cola): The further Coca-Cola lags the broader market, the more enticing the long-term investment opportunity for patient investors.
Year-to-date (at the time of this writing), Coke is up 2%, while the S&P 500 has gained 3.1%. Zoom out over the last three years, and Coke is up just 4.4% compared to a whopping 36.8% gain in the S&P 500.
Granted, Coke is going to have a tough time keeping pace with a growth-driven rally. And most investors are probably drawn to Coke for the passive income opportunity rather than to try and beat the market. But Coke is too good of a company to be this underappreciated, presenting a compelling opportunity for income investors.
Coke sold off in the last couple of months of 2024 due to concerns about slowing growth. Coke's unit case volume declined in the third quarter of 2024 -- indicating challenging consumer demand and pushbacks against price increases. With little hope for the situation to improve anytime soon, analyst consensus estimates call for just $2.96 in 2025 earnings per share (EPS), a mere 3.9% increase compared to 2024 EPS estimates of $2.85. In other words, Coke's bar is set low in the near term. But in the long term, the company's portfolio of brands across several nonalcoholic beverage categories should be able to support steady dividend growth.
It's also worth mentioning that Coke is far from the only food and beverage stock struggling. Its peer, PepsiCo, is seeing even worse volume declines, with the stock price down 13% in the last three years. Packaged food companies like Kraft Heinz are floundering around multiyear lows. Even energy drink company Celsius Holdings is down a staggering 75% from its 2024 high as its sales growth went from meteoric to negative on a dime.
Despite the sell-off across the industry, investors shouldn't expect a rebound in Coke until it returns to meaningful volume growth. But for patient investors with at least a three- to five-year time horizon or folks simply looking to supplement income in retirement, Coke and its 20.9 forward price-to-earnings ratio stand out as a good value now.
Based on the current payout and a yield of 3%, a $3,000 investment in Coca-Cola should earn you $90 in passive income in 2025. But given Coke is expected to raise its dividend in February, the actual amount of passive income will likely be even higher.
A value stock yielding 3.8%
Lee Samaha (Kenvue): The consumer health company makes the list of Dividend Kings by stint of its history as part of Johnson & Johnson. The good news for income-seeking investors is that the spinoff also returns cash to investors via dividends. In addition, the stock has upside potential if management can turn around its underperforming skin health and beauty segment.
Its other segments, self-care (including Tylenol and Calpol) and essential health (Listerine, Band-Aid) are doing well and are positioned in consumer staple markets that perform relatively well in a slowdown.
Overall, Kenvue is on track for organic revenue growth of 2% to 4% and adjusted diluted earnings per share of $1.10 to $1.20, the midpoint of which would put Kenvue on a price-to-earnings multiple of 18.6 times earnings.
It's a reasonable valuation, but it could be an excellent valuation if management's plan to improve advertising/marketing, in-store positioning, and relationships with dermatologists and skin care experts in the skin health & beauty segment (Neutrogena, Aveeno) works out.
While there's no guarantee of a turnaround in the skin health and beauty segment (organic sales are down 5.2% in the first nine months of 2024 compared to the same period in 2023), the current valuation provides some downside potential, and there's upside potential if the problematic segment improves -- a classic value proposition.
Fortis represents a regal choice to generate an electric stream of passive income
Scott Levine (Fortis): A new name among this formidable group of dividend all-stars, Fortis, which operates gas utilities and electric utilities throughout North America, celebrated its coronation as a Dividend King in 2024. It's a short time wearing the crown; however, it should hardly stop those hungry for passive income from clicking the buy button on Fortis stock. Fortis stock is especially appealing now, providing investors with a forward yield of 4.1%, as it's hanging on the discount rack.
Unlike some utilities with significant unregulated business operations, the preponderance of Fortis' assets -- about 99% -- represents regulated operations. These regulated utilities, moreover, provide the majority of the company's revenue. In 2023, Fortis' regulated business operations represented more than 99% of Fortis' sales. Although the company can't arbitrarily raise rates on its natural gas and electricity customers when it deems fit, it receives guaranteed rates of return. This, in turn, provides the company with great foresight into future cash flows, helping management plan for capital projects and future dividend payments. From 2025 through 2029, Fortis plans on allocating more than $26 billion to projects to improve its infrastructure for both its regulated utilities and nonregulated businesses.
While the company's previous success in consistently hiking its dividend for over half of a century is impressive, it certainly doesn't mean that the company will extend its streak for another 50 years; however, management does seem intent on continuing to boost the payout higher over the next few years. Specifically, management has targeted annual dividend growth of 4% to 6% through 2029.
Whereas Fortis stock has a five-year average operating cash flow multiple of 8, it's now changing hands at a multiple of 7.4, offering investors the chance to pick up a royal dividend opportunity at an attractive price.
Should you invest $1,000 in Coca-Cola right now?
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Celsius and Kenvue. The Motley Fool recommends Fortis, Johnson & Johnson, and Kraft Heinz and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
