After nearly two years of a roaring bull market, the dividend yield for the S&P 500 has fallen to just 1.21%. Income investors can do much better with quality individual stocks. Here are two that can significantly boost your passive income in 2025.
1. Coca-Cola
Coca-Cola's (NYSE: KO)forward dividend yield is currently 2.9%, which is very attractive for an iconic brand that generates high sales volumes every year. Companies with repeat revenue from customers are typically safe dividend stocks, since the high sales volumes lead to more predictable financial results.
Coca-Cola currently pays a quarterly dividend of $0.485 per share, bringing the payout ratio to 68%, based on 2024 earnings estimates. This means the company is rewarding shareholders with an above-average yield by paying out only around two-thirds of its annual earnings in dividends. This is a sustainable payout level for Coke, given the company's growth and focus on improving margins.
The stock surged to new highs this year, but pulled back after the recent earnings report. Coca-Cola's non-GAAP (generally accepted accounting principles) adjusted revenue was up 9% over the year-ago quarter, but that is mostly from price increases. Coke's unit case volume has shown a negative trend over the last two years. It was up 4% year over year in Q3 2022, up 2% in Q3 2023, and down 1% year over year in Q3 2024.
I wouldn't avoid buying the stock because of recent weakness in unit sales. In fact, if the company were experiencing stronger sales volumes, the stock would likely be trading higher, and the dividend yield would be lower. Unit case volume appears to be down due to weak consumer spending trends, which is impacting the retail sector.
Most importantly for dividend investors, Coke is performing well where it counts, with adjusted operating margin up one percentage point to 30.7%, and adjusted earnings up 5% year over year.
Strong profitability is ultimately what pays dividends, so with analysts expecting the company to report 5% annualized growth over the next several years, Coca-Cola investors should see several years of consistent dividend increases.
2. UPS
UPS(NYSE: UPS) has a higher forward yield than Coke, currently sitting at 4.76% -- close to UPS stock's all-time highs. The shipping giant has increased its dividend for 15 consecutive years and currently pays a quarterly dividend of $1.63 per share. The drawback is that the payout ratio is much higher than Coca-Cola's at 87%, which is not ideal, but there are a few reasons investors shouldn't hesitate to add the stock to their income portfolio.
UPS appears to be turning a corner after struggling with macroeconomic challenges over the past year. Customers have been trading down to lower-priced shipment options, which has pressured growth, but the company saw an increase in revenue in Q3.
Moreover, adjusted operating income grew nearly 23% year over year last quarter, driven by stronger volume growth and cost management. Management raised its full-year margin guidance, which could signal the beginning of a turnaround for a company that has seen its margins dip from more than 10% to the high-single-digit range over the last year.
Ultimately, UPS will see better revenue growth in a stronger economy. Analysts expect revenue to grow 4% in 2025, with earnings increasing by 18%. With the stock down 41% from its previous highs, now might be the perfect time to buy shares before the stock rebounds. The high yield suggests the shares are undervalued, especially with the recent increase in operating profit and management's favorable outlook for margins.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,993!*
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- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $407,720!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 28, 2024
John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
