Generating passive income is a core aspect of my financial strategy. My goal is to eventually produce enough recurring investment income to cover my basic living expenses.
I try to make progress toward that goal each month by investing more money in income-generating investments like high-yielding dividend stocks. This March, I plan to buy several, including PepsiCo (PEP 0.95%), Johnson & Johnson (JNJ 0.79%), and Prologis (PLD 0.94%). Here’s why I can’t wait to add to my position in this income-generating trio.
Taking another sip of this elite dividend stock
PepsiCo currently has a 3.5% dividend yield, more than double the S&P 500‘s 1.3%. Because of this, every $100 I invest in PepsiCo stock will produce about $3.50 of annual dividend income, compared to around $1.20 of dividends per year from an S&P 500 index fund.
The beverage and snacking giant has a phenomenal record of paying dividends. It recently announced plans to increase its payout by another 5%, marking the 53rd year of consecutive annual dividend increases. It keeps the company in the elite group of Dividend Kings, companies that have increased their payments for 50 or more years in a row.
PepsiCo is in an excellent position to continue increasing its high-yielding payout. Its long-term target is to organically grow its revenue at a 4% to 6% annual rate, which should drive high-single-digit earnings-per-share growth. Meanwhile, it has a strong balance sheet that allows it to enhance its growth rate through acquisitions. For example, it has acquired PopCorners, Sabra, and Siete in recent years, adding new sources of growth.
A very healthy dividend stock
Johnson & Johnson pays a 3%-yielding dividend. The healthcare giant also has a strong record of dividend growth. Last year was the 62nd straight year it had increased its dividend.
The innovative medicine and medical technology company backs its payout with one of the healthiest financial profiles around. The nearly $400 billion healthcare behemoth (by market cap) ended last year with only $12 billion of net debt ($37 billion of debt and $25 billion of cash and equivalents). Meanwhile, it produced $20 billion in free cash flow last year (easily covering its $11.8 billion dividend outlay).
Johnson & Johnson has maintained a very healthy financial profile, even as it has invested heavily in its continued growth. Last year, it spent $17.2 billion in research and development to discover and test new therapies and medical technologies. It also deployed, announced, or committed $32 billion to inorganic growth opportunities (including agreeing to buy Intra-Cellular Therapies for $14.6 billion last month). These investments will help grow its revenue and cash flow, enabling Johnson & Johnson to continue increasing its high-yielding dividend.
Leading growth
Prologis currently yields 3.3%. The leading real estate investment trust (REIT)Â focused on logistics properties recently raised its payment by another 5%. While that’s a lower growth rate than in recent years (it has delivered 13% compound annual dividend growth over the past five years), it’s right in line with the averages of the S&P 500 and the broader REIT sector.
The REIT has been dealing with a bit of a slowdown in demand for warehouse space due to uncertainty about interest rates and the election. However, with the election over and rates starting to fall, leasing activity has begun to rebound. That drives its view that its rental income should continue rising this year.
In the long term, Prologis expects demand for logistics space to continue increasing. It’s in a great position to capitalize on this growth. It has a vast land bank to support future developments and a strong financial profile to fund development projects and acquisitions. This growth should enable the REIT to continue increasing its dividend at a solid pace.
High-quality, high-yielding dividend stocks
PepsiCo, Johnson & Johnson, and Prologis are great dividend stocks. They offer higher-yielding payouts that they’ve steadily increased. Because of this, they can supply me with growing streams of passive income. That’s why I plan to buy more of each this month as I continue increasing my passive income.
Matt DiLallo has positions in Johnson & Johnson, PepsiCo, and Prologis. The Motley Fool has positions in and recommends Prologis. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $90 calls on Prologis. The Motley Fool has a disclosure policy.
