Want $7,800 in Passive Income? These 2 monster stocks have just increased their dividends

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We have just passed the last earnings season and, like every earnings season, this one has left many dividend increases in its wake.

The dividends are excellent, excellent sources of passive income. By buying 1,000 shares each of recent raisers – and Dividend Kings – PepsiCo (DYNAMISM -0.13%) and Stanley Black & Decker (SWK -3.40%), you could raise $7,800 in the next 12 months without lifting a finger. Now, that requires spending, as the first company is currently trading at nearly $181 per share and the second at nearly $103. But, as with any investment, it’s not difficult to start small and accumulate larger holdings over time.

In the meantime, as we are still far from the ex-dividend dates of these two companies, there is still plenty of time to take advantage of the two increases.

1. PepsiCo

Although its almost namesake soda is the product most easily identified with PepsiCo, the company is also a powerhouse in the snack category. The longtime launcher of snack foods like Ruffles, Doritos and Quaker Oats potato chips packs a mighty punch in the drinks and snacks category — powerful enough to declare a dividend boost every year. The 2022 edition is a 7% increase to $1.15.

Do you remember the New Coke debacle? The disastrous experience Coca Cola had with the change in formula of its flagship drink in 1985 shows that consumers are not very fond of adapting to their beloved comfort foods and liquids. So there is very little innovation needed for products like Pepsi, Mountain Dew, Quaker, etc. PepsiCo will occasionally release a new flavor, but that’s as far as it usually goes.

This makes the company a monstrous cash cow, as it only requires relatively modest advertising/marketing expenditures to remain competitive in each of its two segments. Net margins are high for the food industry (at or around 10% in recent years), as is free cash flow (FCF). On an annual basis, the latter is approaching $7 billion these days, leaving plenty of room for those constant dividend increases.

Cash-rich, consistently profitable, and in line with its annual dividend increase, PepsiCo is in many ways a model dividend stock for income investors. The company’s latest dividend increase goes into effect with the quarterly payout to be distributed Sept. 30 to investors of record as of Sept. 2. At the most recent closing price, that would be 2.6%.

2. Stanley Black & Decker

A higher return offsets a little more risk associated with veteran toolmaker Stanley Black & Decker. After a long bull run, the US housing market, always a driver for the company, looks a bit wobbly these days.

Yet even though Stanley Black & Decker has struggled lately, a slump in its stock price makes it hugely attractive. On top of that, last month the company declared another increase to its dividend, increasing its quarterly payout by 1%.

It’s not a beefy number, but it’s a business to be cautious about in the current environment. The winds are already blowing – revenue and profitability fell significantly year-over-year in the company’s second quarter and fell short of analysts’ average estimates. Also, the last reduction in orientation was profound.

Yet the company is still relentlessly striving to succeed, and in some ways is doing quite well. In this quarter, through smart acquisitions, it managed to grow its revenue by 16% year over year.

Meanwhile, Stanley Black & Decker has an enviable history of reliably delivering bottom line profits – even if these can sink in down cycles. It also pays a generally low dividend relative to the FCF it tends to rake in, although like other metrics, the FCF has sagged lately.

I strongly believe that Stanley Black & Decker will recover as it has in the past, and its stock has a good chance of swinging much higher in the next up cycle. As mentioned, I also really like the company’s performance with its new dividend increase; at the current share price, it is 3.2%.

The increased dividend will be distributed on September 20 to shareholders of record on September 6.

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