Do you like passive income? Then you’ll love these 3 dividend stocks.

Dividends can be a great way to earn passive income no matter what happens in the stock market. The best dividend paying companies reward long-term investors with a combination of dividend income and capital gains. However, there are some nuances to dividend investing that are worth considering.

Some people prefer stable and highly reliable companies such as Coca-Cola (New York Stock Exchange: KO) or Air products and chemicals (New York Stock Exchange: APD). Others may gravitate towards companies with higher risk and higher potential reward, such as Diamondback Energy (NASDAQ: FANG) which offers variable dividends that can go up and down depending on the performance of the business.

Here’s why all three dividend stocks are worth buying now.

Image source: Getty Images.

Coca-Cola faces slowing demand

Daniel Felber (Coca-Cola): Despite the continued rally in broader indexes, Coca-Cola shares are down more than 12% over the past month, a significant selloff for the ultra-reliable blue-chip company.

Coke prices are falling for two main reasons. First, its last earnings report wasn’t very good. Secondly, the consumer staples sector is under pressure as some sector leaders are underperforming.

Coke’s latest report showed lower volumes, indicating slowing demand and suggesting Coke could have a tough 2025 ahead, especially if consumer spending remains questionable. But Coke is still on track to deliver organic non-GAAP (adjusted) revenue growth of 10% and non-GAAP earnings growth of 5% to 6% in 2024, largely because the company continues to operate despite challenging operating conditions. Wednesday.

Coke ran several successful marketing campaigns in 2024, mostly focusing on seasonal drinks. But she is also an expert in marketing and developing brands to become core products in her beverage portfolio. Topo Chico is a great example.

In 2017, Coke bought sparkling water company Topo Chico for just $220 million. In its recent earnings report, it said Topo Chico’s year-to-date sales have increased tenfold from pre-acquisition levels in 2016.

Topo Chico is a great example of how Coke recognized the potential of a high-quality regional brand and turned the brand into an industry leader with exponential growth. Of course, Coke isn’t perfect and may be overpaying for brands like Bodyarmor and Costa Coffee. But overall, Coke is doing a good job of its core mission of producing soft drinks and growing existing brands while taking smart risks on up-and-coming brands.

The sell-off in Coca-Cola stock certainly represents a buying opportunity for patient investors. Coke has a price-to-earnings ratio of 26.4 and a forward P/E ratio of 22.4. The 10-year median P/E is 27.4, meaning Coca-Cola shares are trading at a discount to their historical average.

With a 3.1% yield and 62 straight years of dividend increases, Coke is a source of passive income that investors can count on for reliable dividend income for decades to come.

Air Products Delivers Reliable Dividends That Will Help Investors Sleep Better

Scott Levin (Air Products & Chemicals): The best way to achieve this goal can be debated, but most would agree that portfolio diversification is essential for long-term investing success. While not all investments can provide passive income, including reliable dividend stocks like Air Products and their 2.3% forward dividend are a smart way to grow your personal wealth. Air Products has increased its payout for more than 40 consecutive years, demonstrating a strong commitment to rewarding shareholders.

From energy to food and beverage to biotechnology (in fact, the company’s customers span more than 30 industries), a wide variety of businesses rely on the industrial gases Air Products supplies. This will certainly be attractive to those looking for a conservative investment. For Air Products, the advantage of having customers from such a variety of industries helps reduce the risk of a sharp downturn in any one industry. It also ensures that the company generates stable cash flows, which it can then partially return to shareholders in the form of dividends.

To get an idea of ​​how careful management is about maintaining the company’s financial health in regards to dividends, consider the fact that over the past 10 years, Air Products’ average payout ratio was 62.3%. Moreover, the company consistently generates solid cash flow from operations from which it can earn dividends.

Those concerned about the company’s sources of future growth may find their concerns quelled by looking at the company’s solid order book: about $19.5 billion.

The Permian region remains the most productive oil-producing region in the United States

Lee Samaha (Diamondback Energy): The oil and gas company’s management describes Diamondback as a “premier Permian company.” If it lives up to its expectations and the Permian region can continue to demonstrate that it is not only the largest oil-producing region in the US (nearly 5 times the production of the Bakken region) but also the fastest growing, then Diamondback has a bright future.

Data on total oil production in the Permian region from YCharts

The company recently completed a merger with Permian-focused Endeavor Energy, which will increase its presence in the region and create significant synergy opportunities. Management took advantage of strong cash generation and relatively low valuations in the energy sector to acquire energy assets at reasonable prices.

On the issue of dividends (Diamondback intends to return 50% of its quarterly free cash flow to investors), the company pays an annual dividend of $3.60, which equates to a dividend yield of about 2% at the current price, with oil prices needed to support being around 37 dollars per barrel.

However, the company also pays opportunistic variable dividends. With the current oil price well above $37 and the addition of Endeavor improving its cash flow profile in the attractive Permian region, investors can expect well over $3.60 in annual dividends in the coming years.

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*Stock Advisor returns as of November 18, 2024.

Daniel Felber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levin has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.