Want passive income? Invest in these 3 kings of dividends


Economic data has been mixed in recent weeks, leading to an ongoing debate over whether the US economy is in a recession. On the one hand, July’s strong jobs report can build on the other, while the other can signal two consecutive quarters of negative gross domestic product growth. Ultimately, the official decision will be left to the National Bureau of Economic Research in the coming months.

Regardless of the state of the recession, it would be wise to prepare for it. And there’s arguably no better way to do that than by buying shares of Dividend Kings. These companies have established business models that have increased dividends for at least 50 consecutive years. Here are three choices that income investors might consider adding to their portfolios.

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1. Altria Group

Altria Groupit is (MO 0.33%) A cigarette retail share of 48.2% makes it the most dominant player in the United States. The company’s flagship cigarette brand, Marlboro, accounted for 42.6% of U.S. cigarette retail share in the first half of 2022.

Well-established cigarette brands are quite resilient, as many smokers stick to the habit even in tougher economic times. Price increases more than offset volume declines, which is how Altria Group’s net excise tax revenue in the first half of this year managed to rise by a fraction of a percent to reach $10.19 billion.

Although the company is best known for its cigarettes, it also produces several oral tobacco products and holds stakes in Anheuser-Busch Inbev and Juul Labs, among other companies. These product areas and strategic investments should pave the way for modest growth going forward, which is why Wall Street analysts expect the company to grow 4.3% annually in earnings over the past five years. coming years.

And Altria Group’s huge 7.9% dividend yield doesn’t appear to be a yield trap, as its dividend payout ratio sits a bit below its target payout ratio of 80%. This allows the company to retain enough capital to repay debt, repurchase stock and make acquisitions.

Altria Group is valued at a forward price/earnings (P/E) ratio of just 9.4. For context, this figure is well below the average tobacco industry price-earnings ratio of 12.9.

2. AbbVie

Few items are as important to sustaining life as prescription drugs, making AbbVie (ABVV -0.94%) about as recession proof as a Dividend King could be. The company’s portfolio includes 10 drugs that are on track to register at least $1 billion in sales in 2022. This includes mega blockbuster Humira, which is expected to generate $20 billion in sales this year.

Even though sales of Humira will drop rapidly after its patent expires in 2023, AbbVie is well prepared. In recent months, AbbVie has obtained major regulatory approvals from the US Food and Drug Administration for Skyrizi and Rinvoq. In total, the company has approximately five dozen compounds in various stages of clinical development in its pipeline.

AbbVie’s market-beating 4% dividend yield also looks safe. Along with the strong drug pipeline to support future revenue and earnings, the company’s dividend payout ratio is positioned to be a manageable 40.7% in 2022.

And at a forward P/E ratio of 10.2, AbbVie is discounted to the pharmaceutical industry average forward P/E ratio of 13.4. This creates an adequate safety margin for investors while they wait for the company to execute on its plan to move beyond Humira.

3. Genuine Parts

Inflation is eating away at discretionary income and shortages of semiconductor chips are helping to disrupt new car production. That means most people will have to continue driving their used vehicles for the foreseeable future, which is good news for the automotive and industrial aftermarket retailer. Authentic parts (GPC 0.50%).

That’s why analysts expect annual earnings growth of nearly 5% from the company over the next five years. And with the dividend payout ratio expected to be 44.9% in 2022, there should be plenty of room for future dividend growth.

The only real downside to OEM parts right now is its valuation. The stock’s 2.3% dividend yield is significantly below its 10-year median of 2.8%. Personally, I would be more interested in the original coins if it was closer to that 2.8% yield, which would require the stock price to drop from $160 to around $130.

Kody Kester holds positions at AbbVie, Altria Group and Genuine Parts Company. The Motley Fool recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.


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