In the world of finance, much like baseball, the season is long and unpredictable. The Federal Reserve’s potential interest rate cuts next year have sparked a risk-on sentiment in the market.
However, the future remains uncertain. Unforeseen circumstances could arise, causing the Fed to change course, and the tailwind for risk-on assets could dissipate. This unpredictability strengthens the case for dividend stocks as a source of passive income.
Dividend stocks are essentially safe bets on profitable, well-established companies. They may not make you wealthy, but they’re unlikely to leave you penniless. Here are three dividend stocks worth considering for passive income.
Archer Daniels Midland (ADM)
Archer Daniels Midland (NYSE:ADM), a multinational food processing and commodities trading company, is a solid choice due to its critical business model. ADM operates hundreds of crop procurement facilities and plants worldwide, making it a vital part of the global food supply chain.
Despite geopolitical and economic challenges that have driven down shares this year, the company’s relevance is undeniable. The global food processing market was valued at $169.39 billion last year and is projected to grow at a compound annual growth rate of 6.6% by 2031, reaching over $301 billion.
Analysts rate ADM shares as a moderate buy with a $92.13 price target, implying over 27% upside. The company also offers a forward dividend yield of 2.49%, backed by 50 years of consecutive payout increases. However, investors should be prepared for downside risk due to the company’s volatility.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) is another stalwart in the dividend stock space. Despite taking a hit during the Covid-19 crisis, Coca-Cola has steadily expanded its top line since 2020 and has consistently been profitable. If economic conditions remain challenging, Coca-Cola could benefit from the trade-down effect as consumers opt for cheaper caffeinated beverages.
Currently, Coca-Cola offers a forward yield of 3.12%, beating the consumer staple sector’s average yield of 1.89%. The company also boasts 61 years of consecutive payout increases. However, investors should note that they will be paying a premium for KO, which is priced at a forward earnings multiple of 21x.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM), one of the world’s largest oil and gas companies, is also worth considering. Despite a 5% dip since the start of the year, Exxon Mobil remains a compelling choice for dividend stocks. Fossil fuels continue to be relevant due to their high energy density. Exxon Mobil offers a forward yield of 3.74%, slightly lower than the sector average of 4.24%.
However, the company has 41 years of consecutive dividend increases and a reasonable payout ratio of just under 40%. Investors should be aware of potential volatility due to geopolitical factors and reduced demand.
Final Thoughts
While the future remains uncertain, dividend stocks from well-established companies like Archer Daniels Midland, Coca-Cola, and Exxon Mobil offer a reliable source of passive income.
Let us know what you think, please share your thoughts in the comments below.
