3 Top-Notch Dividend Stocks to Buy for Passive Income

June 28, 2023

Top dividend stocks

In this highly uncertain economic environment, investors may be wondering what there is that’s worth investing in to earn a return.

One of the best places – proved over the long term – is in dividend stocks. That’s because even if the global economy remains subdued, profitable companies will continue to pay out their cash flows as dividends to shareholders.

It’s also often forgotten that dividends form a significant portion of long-term total returns (and even more if you reinvest your dividends).

With this in mind, here are three top-of-the-range dividend stocks that any investor can buy and hold for passive income streams.

1. Lowe’s

First up is home improvement retailer Lowe’s Companies Inc (NYSE: LOW). Although it’s often compared to its larger rival – Home Depot Inc (NYSE: HD) – Lowe’s stock has actually outperformed Home Depot’s over the last five years.

That’s mainly down to the company taking a larger market share of a significant total addressable market in the US home improvement sector.

For FY2022 (for the 12 months ending 3 February 2023), Lowe’s reported total sales of US$97.1 billion and actually returned US$16.5 billion to shareholders in the form of share buybacks and dividends.

While its Q1 2023 earnings saw guidance for the full year lowered, Lowe’s still managed to raise its quarterly dividend per share (DPS) by nearly 5% to US$1.10.

Over the last decade, Lowe’s has managed to grow its dividend by a compound annual growth rate (CAGR) of 21.3%.

Currently Lowe’s shares are up over 12% so far in 2023 and it currently provides investors with a dividend yield of 2%.

2. Brookfield Renewable Corporation

We all know that renewable energy is a massive growth opportunity and that’s particularly true for those that own the assets, like Brookfield Renewable Corporation (NYSE: BEPC) does.

The company is a subsidiary of the massive asset manager Brookfield Asset Management Ltd (NYSE: BAM).

Given Brookfield Renewable owns 26 gigawatts (GW) of clean energy operating assets – with a further whopping 126 GW in development – the company is one of the world’s largest renewable energy firms.

By tapping into long-term power purchase agreements (PPAs) with corporates, Brookfield Renewable has been able to build out sustainable and reliable cash flows.

In its latest Q1 2023 earnings, the firm reported funds from operations (FFO) of US$275 million, which equated to a 13% year-on-year increase in FFO per share to US$0.43.

Brookfield Renewable also pays out a quarterly dividend of US$0.3375 per share, which was a 5.5% increase over the prior-year period.

With a best-in-class balance sheet, and over US$4 billion in available liqudiuty, this renewable energy giant looks likely to continue to grow its income streams.

Over the past 23 years, it has managed to grow its dividend at a CAGR of 6%. Currently, shares of Brookfield Renewable’s corporation shares (BEPC) yield a relatively attractive 4.2%.

3. Abbott Laboratories

Finally, there’s healthcare equipment and testing giant Abbott Laboratories (NYSE: ABT). The firm is one of the world’s largest medical devices companies.

And while its Q1 2023 earnings recently saw an 18.1% decline in revenue to US$9.7 billion for the period, this was down to the steep falloff in Covid-19 testing-related sales.

If investors strip that out, organic sales for Abbott’s underlying business actually expanded by 10% year-on-year – driven by its medical devices, pharmaceuticals, and nutrition divisions.

The firm is also a leader in glucose monitoring devices, mainly down to the company’s Freestyle Libre franchise.

Furthermore, other aspects of its business continue to perform well and some developments for the company show promise, including a treatment for chronic pain.

Over the past decade, Abbott has managed to grow its dividend at a CAGR of 13.8%. Currently shares are yielding 1.9%.

Think about sustainable dividend growth

When thinking about dividends and companies’ ability to pay them, we should be focused on the dividend growth and payout ratio rather than the yield.

This way, we have a better gauge on the sustainability of the dividend to ensure we don’t see any nasty dividend cuts in future.

With Lowe’s, Brookfield Renewable Corporation, and Abbott Laboratories, investors can buy and hold businesses that have demonstrated their track records for both growing and maintaining their dividends.

 

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips owns shares of Lowe’s Companies Inc and Brookfield Renewable Corporation.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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