If you are a passive income investor like me, you will always be on the lookout for high-yield dividend stocks. However, not all stocks are made equal. Some companies might pay dividends but the payment may not be sustainable and this can put your regular income at risk. On the other hand, some companies might pay a very high dividend when they make strong profits and cut down the dividend payout when the profit drops.
As a smart investor, it is essential to look for companies that pay steady dividends and have the free cash flow to be able to sustain the same. A dividend yield shows the percentage of the company’s share price paid in the form of a dividend. When picking high-yield dividend stocks, it is important to watch out for the dividend yield and the payout ratio.
While a high-dividend yield is attractive, a number over 5% can be risky. It is best to look for a dividend yield in the range of 2% to 4%. I’ve picked out three dividend stocks with a 3%+ yield that will upgrade your annual income. Let’s take a look at them.
PepsiCo (PEP)
A household name and a global giant, PepsiCo (NASDAQ:PEP) enjoys a strong position in the industry. The stock has seen a pullback recently and is down 5% year-to-date. Exchanging hands for $163, PepsiCo trades much lower than its 52-week high of $192. The stock enjoys a dividend yield of 3.31% and has raised dividends for 52 consecutive years.
The recent quarterly results weren’t as impressive for the company with a revenue miss. It reported a revenue of $22.5 billion, up 1% year-over-year, and an earnings-per-share of $2.28. The management stated that consumers have become value-conscious and are pushing back on purchases. However, one quarter speaks nothing about the company’s solid market share and potential. I’d consider this pullback as a buying opportunity.
The reason behind PepsiCo’s revenue drop is inflation and it is a temporary concern. It has taken a toll on consumer spending which could normalise in the coming quarters. With PepsiCo, there is no threat of losing your money and if you are looking for a steady dividend income over the next decade, PepsiCo is the stock to buy.
Chevron (CVX)
Oil and gas giant Chevron (NYSE:CVX) is another favorite dividend stock with a yield of 4.19%. The company is a cash flow machine and enjoys a strong upward and downward stream business. With oil prices steadily rising, Chevron is going to benefit. As compared to the other oil giants in the industry, Chevron has a strong business model and minimal debt which offers it adequate financial flexibility. It can handle volatility while rewarding shareholders.
Moreover, as Warren Buffett’s favorite energy stock, Chevron has a solid runway. The oil demand is not going to drop anytime soon and this means Chevron will continue raking in cash. While we attempt to move towards renewables, there is no certainty that we will become successful there and it cannot be done overnight.
Trading at $158, CVX stock is up 5% YTD and 26% in the past five years. The company has increased dividends for 37 consecutive years and has the flexibility to keep hiking dividends in the coming years. It currently pays an annual dividend of $6.52 which isn’t bad for a stock trading at $158. Thus, Chevron is an attractive long-term bet for dividend investors.
Johnson & Johnson (JNJ)
Incorporated in 1886, Johnson & Johnson (NYSE:JNJ) is one of the most reliable pharmaceutical stocks to own. The company has been around longer than many of us can imagine and it has seen it all. Having survived inflation, recession, wars, and market turmoil, Johnson & Johnson remains at the forefront of the pharmaceutical and biotechnology industry.
Trading at $149, JNJ stock is down 6% YTD and trading much lower than the 52-week high of $175. The pullback is a chance to buy the stock with a dividend yield of 3.32%. The company has increased dividend payouts for 52 consecutive years and remains a dividend aristocrat.
The strong business has been under pressure due to the talc lawsuits and the process has troubled the management for several years. Once the company settles this lawsuit, it will be in a better position and could help give the stock a boost.
Its first-quarter sales came in at $21.4 billion, up 2.3% YOY and the majority of that came from the innovative medicine segment. It is aiming to achieve a growth rate of 5% to 7% from 2025 to 2030 and has a pipeline of at least 10 drugs that can generate $5 billion in annual sales. JNJ stock might be down today but it is not out and buying the stock in the dip could be a solid move.
On the date of publication, Vandita Jadeja did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
