4 Durable Dividend Stocks Retirees Can Count On for Passive Income
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Retirees who live on dividends need payouts that keep arriving and keep rising through recessions, rate changes and weak quarters. Four healthcare and consumer staples companies meet that standard. They have long, documented raise records, free cash flow that covers the dividend well and balance sheets that can absorb a shock. Procter & Gamble (NYSE:PG | PG Price Prediction) sets the bar: its latest fiscal year marked its 70th consecutive year of dividend increases[1]. Below, each company is graded on whether the dividend is safe first and on yield second.
Johnson & Johnson: 64 Years of Raises Backed by $21 Billion in Free Cash Flow
The yield for Johnson & Johnson (NYSE:JNJ) is at 1.86%. The lowest yield in this group comes with one of the longest records of dividend growth in the market. Earlier this year the board raised the quarterly dividend 3.1% to $1.34 per share[2], the company’s 64th consecutive year of dividend increases. That run makes J&J a Dividend King. For a retiree, it shows up in the payment record: the quarterly check has risen in annual steps from $1.13 to $1.19, $1.24, $1.30 and now $1.34.
Dividend safety: The annual dividend of $5.28 per share is well below management’s adjusted EPS guidance of $11.05 to $11.15[3], and trailing GAAP EPS of $6.59 also exceeds it. Management confirmed full-year free cash flow guidance of $21 billion[3] after generating more than $6 billion in the third quarter alone. J&J ended that quarter with about $17 billion[3] in cash and marketable securities against roughly $45 billion of debt. It is also one of only two U.S.-based companies with a AAA credit rating. The CFO listed the payout among the company’s capital priorities, saying J&J will "increase our annual dividend"[3] alongside funding launches and acquisitions.
Bull case: Demand for cancer drugs and medical procedures holds up in a downturn far better than discretionary spending does. Oncology grew about 17%[3] in the third quarter, and J&J now has 29 products and platforms that each generate at least $1 billion a year. The stock has a beta of 0.2. It has historically moved far less than the broader market, which matters to retirees who may need to sell shares to fund withdrawals.
Risk: STELARA, a former blockbuster, is losing sales quickly to biosimilar competition, with revenue down 55% year over year. Replacing that lost revenue falls to newer drugs.
Procter & Gamble: 136 Straight Years of Dividend Checks
P&G yields 2.55% and has paid a dividend for 136 consecutive years[1]. Its latest raise increased the quarterly payout from $1.0568 to $1.0885 per share, extending the Dividend King run to 70 years. A retiree who held through every recession of the past seven decades collected a larger dividend each year.
Dividend safety: The annual dividend of $4.291 per share is covered by trailing EPS of $6.64 and by fiscal 2027 core EPS guidance of $6.89 to $7.11[4]. Free cash flow reached $15.84 billion[1] last fiscal year, up 12.7%, on operating cash flow of $19.56 billion. That supports management’s plan to pay more than $10 billion[4] in dividends this fiscal year while still buying back about $5 billion of stock. The new fiscal year started well, with first-quarter free cash flow of $4.40 billion[4].
Bull case: Tide, Pampers, Charmin, Crest and Gillette are products households keep buying when budgets tighten. All five divisions posted positive organic growth last quarter, led by Beauty, Grooming and Fabric & Home Care at 5%[4] each, and core EPS of $2.00 beat the $1.89 consensus. A beta of 0.361 adds stability to an income portfolio.
Risk: Input costs are rising. P&G expects about $1.4 billion in after-tax commodity headwinds this fiscal year, part of a combined $0.79 per share drag on core EPS, which could hold the next dividend raise to a modest size.
Coca-Cola: Climbing Free Cash Flow and Low Leverage Protect the Payout
Coca-Cola (NYSE:KO) yields 2.16%. Its payment record shows the quarterly dividend rising in each recent year, from $0.46 to $0.485, then $0.51 and now $0.53. For a retiree, that means a predictable raise each year paid on a fixed quarterly schedule.
Dividend safety: The annual dividend of $2.10 per share is covered by trailing EPS of $3.39, and management expects comparable EPS to grow at least 11%[5] from $3 last year. Free cash flow reached $11.4 billion[5] year to date, and Coca-Cola raised its full-year target to at least $13.0 billion[6]. Net debt leverage of 1.3 times EBITDA[5] is below the company’s own target range of two to 2.5 times. CFO John Murphy made the dividend’s priority clear: "As always, we’re here to return capital to our shareowners. Again, at the moment, that’s primarily through our dividend."[5]
Bull case: Coca-Cola sells concentrate to its bottlers, a model that requires little capital and produces wide margins. Comparable operating margin expanded to 32.9%[6] last quarter, while global unit case volume rose 5% and the company posted its 22[5]nd consecutive quarter of value share gains. Its beta of 0.269 is the lowest of the three consumer names here.
Risk: A long-running tax dispute with the IRS is approaching a court decision, and management has been maintaining balance sheet flexibility to "manage a best- and worst-case scenario."[5] An unfavorable ruling could tie up cash that would otherwise fund dividend growth.
PepsiCo: Highest Yield of the Group With a Turnaround Underway
PepsiCo (NASDAQ:PEP) is the high-yield anchor of this group at 4.08%. The quarterly dividend recently rose from $1.4225 to $1.48 per share. The payment record starts at $0.13 a quarter in 1999. It shows a higher payout in every year through the latest one, so a long-term holder’s income has grown year after year.
Dividend safety: The annual dividend of $5.80 per share is covered by trailing EPS of $7.95. Of the $8.9 billion[7] PepsiCo plans to return to shareholders this year, $7.9 billion goes to dividends and only $1.0 billion to buybacks, so the dividend clearly comes first. Third-quarter operating income rose 19.4%[7] to $4.26 billion, and core EPS of $2.34 exceeded the $2.30 estimate.
Bull case: Shares have gained just 5.11% over five years, which keeps the yield high and the valuation modest. PepsiCo trades at a forward P/E of 16, compared with 24 for P&G and 28 for Coca-Cola. Snacks and drinks sell through every economic cycle, and international markets now produce a growing share of earnings. CEO Ramon Laguarta said, "Year-to-date, international is already 45% of our profit, so we keep building it."[8]
Risk: North America is lagging. PepsiCo cut its core EPS growth outlook to +2.5% to +3.5%[7] from +5% to +7%[9]. Laguarta acknowledged, "We do not feel good about the beverage business."[8] If the turnaround stalls, dividend raises could get smaller.
Four Dividend Payers to Anchor a Retirement Portfolio
J&J and P&G bring verified run of more than six decades of raises, Coca-Cola brings low leverage and rising free cash flow, and PepsiCo brings the highest yield and the lowest valuation of the four. Each one pays its dividend out of earnings and cash flow with room left over, and each sells products people keep buying in a recession. Together they cover healthcare, household staples, beverages and snacks, a combination that gives retirees a reliable stream of dividend income that rises over time. For retirees who want to go deeper into this corner of the market, a free Dividend Kings report ranks ten of the longest-running growers by valuation.
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Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad, diverse career, including a stint as creative services director at an NBC affiliate in Austin, Texas, gives him unique insight into the financial industry.
Lee Jackson's journey in the financial industry spans more than 30 years, including nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career spanned pivotal sell-side Wall Street events, from the dot-com rise and bubble to the Long-Term Capital Management debacle, 9/11, and the Great Recession of 2008. This reflects his resilience and adaptability amid market volatility.
Lee Jackson’s practical financial industry experience, gained through a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing across various platforms. This unique combination allows him to shed light on the intricacies of Wall Street in a way only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.
Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.
