Since March 14, the Nasdaq Compound rebounded 13%, the S&P500 is up 8%, and the Dow Jones Industrial Average is up 5% as investors digest rising interest rates, geopolitical tensions and other market challenges. During this time, the CBOE S&P 500 Volatility Index is down 35%, signaling less fear in the stock market.
Investors who fear a return to volatility and are interested in safe stocks that generate passive income are in the right place.
Invest equally Kinder Morgan ( KMI 1.64% ), Starbucks (SBUX 0.57% )and Clorox (CLX 2.73% ) shares gives the investor an average dividend yield of 3.9% and exposure to the energy sector, the consumer discretionary sector and the consumer staples sector. After five years, an investor can expect a $10,000 investment to earn over $2,000 in passive dividend income. Here’s what makes each dividend stock a great buy now.
Kinder Morgan is not the same company as before
Most readers may not be familiar with Kinder Morgan, which is one of the largest energy pipeline and infrastructure operators in North America. But people who have been investing in oil and gas for more than seven years may remember when the company cut its dividend by 75%.
It’s a checkered past that Kinder Morgan is trying to put behind it for good – and it’s a good start. Since the cut, Kinder Morgan’s dividend has more than doubled as it seeks to reward shareholders through a cash flow-backed dividend.
Kinder Morgan has shifted from an aggressive growth strategy to a defensive preservation strategy – bad news for oil and gas bulls, but great news for investors looking for a reliable dividend stock . Over the past few years, Kinder Morgan has significantly reduced expenses and paid down debt. More than 90% of its business is tied to stable take-out, fee-based contracts that span years, which protect against downside risk at the expense of limiting upside potential.
Kinder Morgan is unlikely to outperform other oil and gas stocks when prices rise. But it’s also much better positioned to generate strong cash flow in lower price environments, as we’ve seen in 2020. Given the stability of its business, Kinder Morgan is a stock worthy of high dividends. yield that is worth considering now.
Throw some beans into your passive income stream
Starbucks often finds itself sidelined in dividend discussions due to outdated perceptions that the company is still a growth stock. It’s not, and it hasn’t been for years.
Today’s Starbucks is a much more boring and stable business. Over the past five years, Starbucks has grown revenue at a compound annual growth rate (CAGR) of just 6.4%. But over the same period, it grew its net profit at a CAGR of 8.3% and its dividend at a CAGR of 14.4%.
Paying the dividend is an integral part of Starbucks strategy. So much so that the company launched its most aggressive dividend and buyout program in its history. In the three-year period between fiscal year 2022 and fiscal year 2024, Starbucks plans to spend $20 billion on dividends and stock buybacks. To put that number into perspective, consider that Starbucks spent just over $2 billion in fiscal year 2021 on dividends.
Investors looking for a strong, recognizable brand that’s also great dividend stock should look no further than Starbucks.
Clorox dividend is safe
Clorox has struggled lately, and those struggles are reflected in the company’s stock price. After hitting a new all-time high in 2020, Clorox stock prices are now hovering around a three-year low and are down more than 40% from that high.
Clorox’s problems all boil down to shrinking profit margins in the face of higher inflation. The company believes that its brands, such as Clorox, Glad bin liners, Burt’s Bees and Kingsford coal are leaders in their respective product categories. But higher costs, higher advertising spend and supply chain issues paint an uncertain picture for the quarters ahead.
In addition to declining margins, Clorox’s growth rate could be negative in fiscal 2022 as the company struggles to complete quarters less affected by inflation.
All told, Clorox is in a multi-year period of low growth. The silver lining is that all of this bad news is already public, so new investors considering Clorox can now buy the stock with all of this headwind already digested by Wall Street.
The bullish argument for Clorox would be that the company will recover over time, it’s a recession-proof consumer staples company, and it’s likely to continue paying and increasing its dividend each year. Clorox is a dividend aristocrat, member of the S&P 500 that has paid and increased its dividend for at least 25 consecutive years. With a dividend yield of 3.4%, Clorox produces a healthy passive income stream.
A hands-off approach
Kinder Morgan, Starbucks and Clorox may have nothing in common as companies. But as stocks, all three could be great additions to a diversified portfolio. Regardless of whether the stock market has rebounded and gone for the races – or if the selloff gets even worse from here – investors can take comfort in knowing that these three companies will produce income without needing to sell shares. .
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.