Investing in dividend-paying stocks enables investors to earn regular passive income. Besides, they also benefit from capital appreciation over time. However, investors shouldn't simply look for the highest possible yield. Since dividends are paid out of profits, investors should look for companies with well-known businesses, a growing earnings stream, and a solid dividend payment and growth history.
Coca-Cola (KO), Linde (LIN), and EOG Resources (EOG) all stand out for the durability of their dividends. Moreover, these companies have been consistently increasing their dividends for years. Let’s examine the factors to understand why these could be great dividend stocks to buy and hold for passive income.
Coca-Cola
Beverage giant Coca-Cola is a dependable stock to earn worry-free passive income, thanks to its ability to grow its top and bottom lines - even in a challenging environment. For instance, on a currency-neutral basis, Coca-Cola’s revenue increased at a CAGR of 7% in the past five years. At the same time, its operating income and EPS grew at a CAGR of 10% and 6%.
Supported by this solid financial performance, Coca-Cola has enhanced its shareholders’ value through higher dividend payments. KO has increased its dividend for 61 consecutive years. In total, from January 1, 2010, till December 31, 2022, Coca-Cola has returned about $76.8 billion to its shareholders through dividends.
Looking ahead, its marketing investments, large addressable market, and growing share leave KO well-positioned to deliver improved sales and profitability to support its dividend payments. Coca-Cola should benefit from higher volumes and pricing - plus, its strong balance sheet and reliable cash flows increase flexibility to accelerate its growth through acquisitions.
Coca-Cola stock offers a dividend yield of close to 3%. Moreover, 11 out of 14 analysts have rated KO stock a “Strong Buy.” The analysts have a 12-month average target price of $70.07, which is about 15% higher than current levels.
Linde
Linde is the leading industrial gases company in the world, and a dependable passive income stock. It serves a variety of end markets - including chemicals and energy, healthcare, manufacturing, and food and beverage, among others - which adds resilience to its business. Further, its active pricing, cost management, and profitable growth help the company to enhance its shareholders’ value via dividend payments and share repurchases.
Linde has increased its dividend for 30 consecutive years. In 2022 alone, the company returned about $7.5 billion in share repurchases and dividends to its shareholders.
The company’s ongoing productivity initiatives, active price management, and focus on increasing network density through acquisitions all bode well for long-term growth. In addition, Linde's strong backlog of $7.8 billion provides a solid foundation for future growth.
Plus, Linde is expected to gain from energy transition opportunities. Its existing hydrogen business, large asset footprint, and technological advantage leave LIN well-positioned to capitalize on the growing shift toward clean energy.
Linde offers a relatively low but very reliable dividend yield of 1.36%. Further, most analysts covering Linde stock are optimistic about its prospects. Of the 18 analysts covering LIN, 16 have a “Strong Buy” recommendation, and two recommend a “Hold” rating.
The average price target for LIN is $415.70, implying expected upside of about 10% from current levels.
EOG Resources
With its ability to pay and grow dividends uninterrupted, in all market conditions, EOG Resources stock looks like an attractive investment to generate worry-free passive income. The company is among the leading crude oil and natural gas exploration and production companies.
EOG Resources’ low-cost structure, high-quality multi-basin resource base, and solid balance sheet support its dividend payments and growth. Notably, the company has increased its dividend for 25 consecutive years. Further, its dividend grew at a CAGR of 22%.
The company aims to pay at least 60% of its annual free cash flows to shareholders through dividends and share buybacks. The company returned $5.1 billion to shareholders in 2022, representing 67% of free cash flow. Further, it continues to strengthen its balance sheet and lower its debt.
EOG has already returned about $3.1 billion to shareholders year-to-date in 2023. It paid $1.9 billion in regular dividends, along with roughly $600 million each in special dividends and share buybacks. Furthermore, its growing portfolio of low-cost and high-return resources is expected to drive cash flows and future dividend payouts.
EOG stock offers a decent dividend yield of 2.53%. Moreover, analysts are bullish about its prospects. Of the 21 analysts covering EOG, 17 have a “Strong Buy” recommendation, and four recommend a “Hold” rating.
The average price target for EOG is $145.12, implying expected upside of nearly 12% from current levels.
Bottom Line
All three of these corporations sport a solid track record of dividend payments and growth. Their resilient business models, ability to grow earnings and cash flows, and focus on enhancing shareholders’ value make them top bets to earn worry-free passive income.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
