The stock market is riskier than bonds, a high-yield savings account, or simply keeping your money in cash. But it’s important to understand that some stocks are much safer than others (although never without risk).
When looking for safe stocks, consider the business sector and whether the company has a business model and balance sheet that can hold up well during an economic downturn. Another factor is the company’s runway for future earnings growth, which could support a growing dividend over time.
Coca-cola (NYSE:KO), Clorox (NYSE: CLX)And Southern Company (NYSE: DUS) have three recession-proof business models and decades of dividend increases. Investing in equal parts of each share yields an average dividend yield of 3% – which is well above 3% S&P500 index average dividend yield of 1.3%. If you put $900 into each stock, it should generate more than $80 in passive income per year. Better yet, the passive income stream should grow if these companies continue to increase their payouts. This is why all three dividend stocks are worth buying right now.
An ultra-safe Dividend King
Coca-Cola is a textbook example of a safe stock. It is a Dividend King with 62 consecutive years of dividend increases. It has a geographically diversified business with a variety of products covering all major categories of non-alcoholic beverages: from soft drinks to juice, tea, coffee, energy drinks, water and sparkling water. Coca-Cola’s diversification ensures that a slowdown in a particular product or region won’t derail the company.
Coca-Cola’s greatest competitive advantage is its ability to develop and market a brand. Coke has the resources to take a brand to the next level by efficiently manufacturing and distributing a product. Not every brand Coca-Cola develops or buys will be a huge success, but Coca-Cola does have the latitude to take risks, make mistakes and double down on a good idea.
Demand for Coca-Cola products is not as cyclical as demand for consumer goods such as a new car or home improvement. This aspect makes Coca-Cola an extremely safe stock, even during a recession.
With a dividend yield of 2.8%, Coke has the potential to provide a foundational holding for risk-averse investors looking to generate passive income or supplement their income in retirement.
Clorox has recovered, but may still be worth buying and holding
Clorox shares fell sharply last summer, but have since staged an epic rally, up more than 20% in the past three months. But Clorox’s fiscal 2024 results haven’t been great, and its fiscal 2025 outlook is also quite weak, calling for organic revenue growth of only 3% to 5% (excluding divestitures). So investors might be wondering why Clorox is such a hot stock lately.
The simple reason for the jump may be due to expectations of where Clorox will be in a few years, rather than where it is now. The company has been cutting costs and its recent divestitures indicate it is focusing on its strongest brands and geographic regions. In the long term, this strategy should lead to higher margins. And Clorox’s margins are already starting to improve.
As you can see in the chart, Clorox is priced about the same as it was five to seven years ago, but operating margins have fallen significantly from the pre-pandemic range of about 18% to 20%. However, the income is higher.
Clorox’s glass-half-full approach is that the company could be a good buy if it can continue to improve margins. Clorox has an excellent portfolio of brands – from its flagship cleaning products to Burt’s Bees, Glad garbage bags, Kingsford charcoal, Brita water filters and more. It has also increased its dividend every year for 46 consecutive years, delivering a 3% yield.
Still, Clorox is on the pricey side, especially considering the company is showing signs of improvement but is likely years away from returning to pre-pandemic form. That’s why you might want to keep an eye on the company’s turnaround, especially how Clorox is deploying its top brands across all its core categories. If some categories start to improve while others lag behind, it could be a sign of a deeper problem with a particular brand. Clorox, for example, is seeing lower sales in bags, wraps and kitty litter, with competitors being blamed for the slowdown. If Clorox can improve its weakest segments, it will be a good sign that the turnaround is almost complete.
Southern Company can provide your portfolio with a lifetime of passive income
Earlier this month, Southern Company reached an all-time high, surpassing $100 billion in market capitalization for the first time. The utility focuses on the southeastern U.S. and makes money through traditional electric utilities, natural gas distribution and wind, solar and natural gas power generation assets.
Southern Company is one of the few utilities that have embraced nuclear energy, opening a nuclear power plant in 2023 and another nuclear power plant in 2024 under subsidiary Georgia Power. Known as Vogtle 3 and Vogtle 4, they are the first newly built nuclear units built in more than three decades. With all four units now in operation, Plant Vogtle is the largest clean energy producer in the country, with an estimated electricity production of 30 million MWh per year.
For context, the US produced 4.178 billion MWh of utility-scale electricity in 2023, of which 775 million MWh was nuclear. This means that Plant Vogtle contributes approximately 0.7% of U.S. utility-scale electricity.
Nuclear energy has received increasing attention recently as major technology companies begin to use nuclear energy as a potential energy source for artificial intelligence. On October 14, parent company of Google Alphabet and Kairos Power signed a Master Plant Development Agreement for 500 MW of nuclear power projects by 2035.
By embracing nuclear, natural gas, solar and wind energy, Southern Company has taken a balanced approach to the energy transition that positions it well and provides valuable experience in bringing mega-scale nuclear projects to life.
With 23 consecutive years of dividend increases and a 3.2% dividend yield, Southern Company stands out as a solid income stock and a utility that is devoting capital to worthwhile projects.
Don’t miss this second chance at a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that 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:
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Amazon: If you had invested $1,000 when we doubled in 2010, then you have $21,285!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $44,456!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $411,959!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 21, 2024
Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
All it takes is $900 invested in Coca-Cola and each of these two super-safe dividend stocks to generate more than $80 in passive income per year was originally published by The Motley Fool
