With the S&P 500(SNPINDEX: ^GSPC) yield at just 1.2%, it has turn out to be more difficult to search out firms or exchange-traded funds (ETFs) that may provide a gradual and sizable stream of passive income. But that doesn’t suggest there aren’t viable options when you know where to look.
Kimberly-Clark(NYSE: KMB), J.M. Smucker (NYSE: SJM), and the Vanguard Total Corporate Bond ETF(NASDAQ: VTC) all yield over 3%. Here’s why these two dividend stocks and this ETF are value buying now.
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Scott Levine(Kimberly-Clark): It’s hard to argue with the allure of picking up a number one consumer staples stock like Kimberly-Clark and watching the ample dividend income consistently roll in — because it has done at increasingly higher amounts for over five a long time, leading to the stock earning the title of Dividend King.
Skeptics will often balk at high-yield dividend stocks for fear that the corporate shouldn’t be standing on firm financial footing. Nonetheless, that is hardly the case with Kimberly-Clark. Income investors could be well-served to strongly consider clicking the buy button on the stock — together with its 3.9% forward-yielding dividend — while it’s hanging on the discount rack.
With a history dating back to 1872, Kimberly-Clark has grown right into a dominant player in the patron staples industry. Whether you are a latest parent who relies on Huggies to guard your infant or a teacher with a box of Kleenex in your desk, the percentages are extremely strong that you simply’re using a Kimberly-Clark brand — or several — on a every day basis.
With such a powerful portfolio of brands, starting from baby care to adult care, Kimberly-Clark generates strong and consistent money flow. This money flow should assuage skeptics’ concerns that the dividend is on shaky ground.
Over the past decade, it’s clear that Kimberly-Clark has generated free money flow from which it could possibly source its payout to shareholders. And it isn’t only the money flow that speaks to the safety of the payout. Over the past five years, Kimberly-Clark has averaged a 76.6% payout ratio.
As a Dividend King, Kimberly-Clark has demonstrated a steadfast commitment to rewarding shareholders. With the stock trading at 16.3 times trailing earnings, a reduction to its five-year average price-to-earnings (P/E) ratio of twenty-two.5, today looks like an amazing time to load up the shopping cart with Kimberly-Clark stock.
Daniel Foelber (J.M. Smucker): Packaged-food firms like J.M. Smucker have gotten hammered in recent months, with many industry leaders hovering around multi-year lows.
Inflation is taking its toll on the industry as buyers watch grocery spending. Packaged-food firms face a one-two punch of weakening pricing power and demand for his or her products, so it’s comprehensible why the industry is out of favor. However the sell-off has arguably gone too far, especially for a top company like J.M. Smucker.
The corporate’s brands — like Jif, Uncrustables, Milk-Bone, Hostess, and others — span various categories, including coffee, frozen foods, snacks, spreads, pet food, baked foods, and more. J.M. Smucker’s growth hasn’t been stellar lately, but revenue remains to be at an all-time high, and margins are excellent.
What’s more, the corporate sports a P/E ratio of just 10.5. That is just too low-cost to disregard for a balanced company with solid brands.
To top all of it off, J.M. Smucker has 23 consecutive years of dividend increases and a yield of three.8%. That is a far longer streak of accelerating the payout in comparison with peers like Kraft Heinz, General Mills, Campbell’s, and Conagra Brands. Nonetheless, investors on the lookout for the last word track record amongst packaged-food firms should take a better have a look at Dividend King Hormel Foods — which has 59 consecutive years of dividend raises.
With its price around a five-year low, investors are getting a wonderful opportunity to scoop up shares of J.M. Smucker while boosting their passive income stream.
By investing $2,500 in J.M. Smucker, you may expect to earn about $95 in passive income in 2025.
Lee Samaha(The Vanguard Corporate Bond ETF): In the event you ever heard the investment maxim “Don’t fight the Fed” and are sympathetic to it, then this 4.5%-yielding corporate bond ETF will interest you.
For the uninitiated, this is not anything to do with avoiding a punchup with Roger Federer, a package delivery employee, or an FBI agent. As an alternative, it means not taking a position on rates of interest that is in opposition to the direction of the Federal Reserve’s rate of interest movements.
Nonetheless, that is precisely what the bond market has done recently. The chart below shows the Federal Reserve reducing its rates of interest. Still, the bond markets are raising rates of interest by selling bonds — the benchmark 10-year Treasury yield is higher than when the Federal Reserve cut rates.
Moreover, as shown below, market rates and high-quality corporate bonds are likely to have an inverse relationship. This makes perfect sense, as when Treasury yields go up, corporate bond yields go up, meaning corporate bond prices go down.
In the event you consider that history will prevail and the market fighting the Fed will end, this bond ETF is a wonderful buy. It has an “ETF of ETF” structure whereby it invests in three other Vanguard ETFs, all of which hold no corporate bonds with a lower than (low default risk) “BBB-” rating. If corporate bond yields decline (and bond prices rise) this ETF could generate significant returns, and it doesn’t hurt that investors are buying in at a 4.5% yield.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends J.M. Smucker. The Motley Idiot recommends Campbell’s and Kraft Heinz. The Motley Idiot has a disclosure policy.
