8 Dividends Stocks To Boost Your Passive Income

Key Metrics To Evaluate When Buying Dividend Stocks

The metrics you evaluate for potential dividend stocks will depend on your investment goals. For example, if you want maximum income, yield will be your primary focus. But many investors view the best dividend stocks as those balancing yield with consistency. A more sophisticated goal is consistent, long-term income that also keeps pace with inflation. Metrics aligning with that goal include:

• Dividend yield. Yield compares the income to the stock price. Yield should be efficient, but not so high that it’s unsustainable.
• Dividend growth rate. A regularly increasing dividend can retain its purchasing power over time.
• Payout ratio. Payout ratio measures the percentage of net income the company pays out in dividends. It is an indicator of dividend sustainability. A low payout ratio is preferred, because it means the net income easily covers the dividend. Note that payout ratio is less meaningful for REITs, which are required to distribute 90% of their taxable income to shareholders.
• Free cash flow growth. Since dividends use free cash, rising free cash flow supports a rising dividend.
• Debt/equity ratio. Debt/equity ratio measures how the company uses debt and equity to fund operations. High debt limits financial flexibility. It also accrues interest charges, which compete with dividends as a use of cash.

How I Chose These Dividend Stocks

Putting those metrics into practice, I created a screen for reliable dividend-payers using these criteria:

• Dividend yield between 3% and 5%
• Five-year dividend growth of 5% or more
• Payout ratio below 70%
• Five-year free cash flow growth of 5% or more
• Debt/equity ratio below 0.75

To learn about more investing options, you can also see the best stocks to buy now and best undervalued stocks.

8 Top Dividends To Boost Passive Income

The screen returned about a dozen U.S.-traded stocks and the top eight are shown in the table below.

Table data source: StockAnalysis.com.

Dividend metrics and dividend projections for each company follow. The dividend income growth scenarios make several assumptions, including annual share price growth of 5% and continuation of each company’s historic dividend growth rate. Historic metrics do not guarantee future results, so actual dividend performance could be very different.

Metrics are sourced from company reports and StockAnalysis.com as of Sept.17.

1. Chevron Corporation (CVX)

Chevron Corporation Business Overview

• Stock price: $213.42
• Dividend yield: 3.39%
• Dividend growth rate: 6.03%
• Payout ratio: 68.38%
• Free cash flow growth: 22.77%
• Debt/equity ratio: 0.19

Houston-based Chevron is an integrated oil and gas company that explores, develops, and produces crude oil and natural gas. Chevron also manufactures and markets fuels and petrochemicals. The company operates around the world. The company’s scale, business performance, and dividend policy have earned CVX a spot in many index funds.

Why CVX Can Help Boost Passive Income

Chevron has increased its dividend annually for 39 consecutive years. The energy company currently pays shareholders $1.78 quarterly. The 3.39% yield produces about $167 annually for every $5,000 invested. If you invested $5,000 today and did nothing else but reinvest dividends, the income rises to $390 after 10 years. That assumes 6% annual dividend growth and 5% annual share price growth.

2. Shell PLC (SHEL)

Shell PLC Business Overview

• Stock price: $96.69
• Dividend yield: 3.19%
• Dividend growth rate: 18.95%
• Payout ratio: 33.56%
• Free cash flow growth: 8.90%
• Debt/equity ratio: 0.40

Shell is headquartered in London and operates as a direct competitor to Chevron. While Chevron has a major presence in the Americas, Shell is stronger in Europe, Asia and Africa. Also, Shell has a larger LNG (liquified natural gas) business than Chevron.

Why SHEL Can Help Boost Passive Income

Shell has increased its dividend in each of the last four years and currently pays $3.02 per share annually. A $5,000 investment today should produce about $156 in annual income. If Shell continues to raise its dividend by 18.95% each year, reinvesting the income for 10 years should increase the passive income to about $1,315 annually.

3. Accenture PLC (ACN)

Accenture Business Overview

• Stock price: $191.43
• Dividend yield: 3.49%
• Dividend growth rate: 13.12%
• Payout ratio: 52.15%
• Free cash flow growth: 6.55%
• Debt/equity ratio: 0.25

Accenture is a consulting firm that specializes in technology optimizations and transitions, including AI adoption. The company has customers in many industries, including aerospace, consumer goods, industrial, insurance, life sciences, retail, travel and utilities.

Why ACN Can Help Boost Passive Income

Accenture has raised its dividend in each of the last six years. The current quarterly payout of $1.63 equates to $6.52 annually for shareholders. Given the 13.12% dividend growth rate, annual income from a $5,000 investment will rise from about $172 to $777 after 10 years.

4. Canadian Natural Resources Limited (CNQ)

Canadian Natural Resources Limited Business Overview

• Stock price: $50.55
• Dividend yield: 3.59%
• Dividend growth rate: 19.35%
• Payout ratio: 44.86%
• Free cash flow growth: 12.31%
• Debt/equity ratio: 0.43

Canadian Natural Resources Limited is also an energy producer. The company is focused on natural gas, light crude oil, heavy crude oil, bitumen and synthetic crude oil. Operations are in Western Canada, the U.K. portion of the North Sea, and Offshore Africa.

Why CNQ Can Help Boost Passive Income

CNQ declares its quarterly dividend in Canadian dollars. Shareholders of the NYSE-traded CNQ receive an equivalent amount in U.S. dollars, exchanged at the prevailing rate on the payment date. The currency exchange creates minor fluctuations in the quarterly income—but it has not negated the upward trend. CNQ has raised its dividend annually for the last 10 years.

Over the last year, shareholders have collected four payments totaling $1.78 per share, for a yield of about 3.5%. Investing $5,000 today should deliver about $177 in annual income. Reinvesting for 10 years raises the annual cash payments to more than $1,500, assuming the 19.35% dividend growth rate continues.

5. Sun Life Financial (SLF)

Sun Life Financial Business Overview

• Stock price: $80.67
• Dividend yield: 3.49%
• Dividend growth rate: 9.18%
• Payout ratio: 65.20%
• Free cash flow growth: 5.64%
• Debt/equity ratio: 0.58

Sun Life Financial provides insurance and asset management services to individuals, businesses and institutions primarily in Canada, the U.S. and Asia.

Why SLF Can Help Boost Passive Income

Sun Life Financial declares its dividend in Canadian dollars and has implemented 10 consecutive years of annual dividend increases.

Assuming a starting yield of 3.49% and annual dividend growth of 9.2%, investing $5,000 in SLF and reinvesting dividends for 10 years would produce income of $169 in the first year and $515 in the 10^th year.

6. Tenaris S.A. (TS)

Tenaris S.A. Business Overview

• Stock price: $57.23
• Dividend yield: 4.29%
• Dividend growth rate: 34.54%
• Payout ratio: 62.25%
• Free cash flow growth: 33.05%
• Debt/equity ratio: 0.03

Tenaris S.A. is a leading manufacturer of pipes and related services for energy and industrial applications.

Why TS Can Help Boost Passive Income

Tenaris has a five-year track record of annual dividend increases. The company pays dividends twice annually, and the amounts can change based on business performance. The last two payments totaled $2.38, which equates to a 4.2% yield.

At that yield, investing $5,000 in Tenaris would produce income of $211 in the first year. After 10 years, the annual income would exceed $2,150, if all dividends were reinvested and the 20% dividend growth continues. A more modest 10% growth rate would produce income of $759 after 10 years.

7. McCormick & Company (MKC)

McCormick & Company Business Overview

• Stock price: $50.54
• Dividend yield: 3.89%
• Dividend growth rate: 7.28%
• Payout ratio: 31.95%
• Free cash flow growth: 8.98%
• Debt/equity ratio: 0.65

McCormick & Company makes and sells spices, seasoning mixes, condiments and related products for the food industry. The company sells flavor products to food manufacturers and foodservice customers and has a portfolio of consumer brands, including McCormick, French’s and Frank’s RedHot.

Why MKC Can Help Boost Passive Income

McCormick & Company has raised its dividend annually for 39 consecutive years. The quarterly payout of $0.48 produces annual income of $1.92 per share. A $5,000 investment would generate income of about $192 in the first year. After 10 years, assuming full reinvestment and annual dividend growth of 7.3%, the income will exceed $500.

8. The Marzetti Company (MZTI)

The Marzetti Company Business Overview

• Stock price: $102.70
• Dividend yield: 4.09%
• Dividend growth rate: 5.92%
• Payout ratio: 57.31%
• Free cash flow growth: 19.02%
• Debt/equity ratio: 0.24

The Marzetti Company makes and sells specialty food products through retail and foodservice channels. Products across both channels include frozen breads, salad dressings, dips and sauces.

Why MZTI Can Help Boost Passive Income

The MZTI dividend has increased annually for nine consecutive years. A $5,000 investment today should produce about $197 in annual income. Remaining invested for 10 years while reinvesting dividends raises the annual cash earnings to about $457, assuming the nearly 6% dividend growth rate continues.

Risks Of Dividend Stock Investing

Dividend stock investing has risks, even with a disciplined research and selection process. The primary risk is loss of capital. Like any publicly traded security, dividend stocks can lose value, sometimes dramatically and unexpectedly, if business conditions deteriorate.

Other risks to note are income variability, inflation erosion and opportunity cost.

Income Variability

Dividends are not guaranteed. A company can reduce, cancel or change its dividend payout at any time, which can translate to varying or unreliable income.

You can manage this risk by choosing companies with long dividend track records and by knowing how to spot yield traps. Yield traps are dividend-payers with a yield that’s unsustainably high. Red flags include a sinking stock price, rising payout ratio, declining profitability and lingering high debt balances.

Inflation Erosion

Inflation erodes the purchasing power of dividend income over time, such that $1,000 is less valuable in 10 years than it is today.

To minimize your inflation risk, opt for dividend stocks that increase their payouts regularly. Annual dividend increases help retain the value of the income over time.

Opportunity Cost

Opportunity cost is the gain you would have earned from investing your money in other asset types. This is a consideration for dividend investors because reliable income stocks can produce lower total returns than other investing styles. Often, a lower return is the trade-off for stability.

You can’t eliminate that trade-off, but you can optimize your income investing strategy by reinvesting dividends and committing to long holding periods for maximum compounding over time.