Generating steady streams of passive income, no matter what the market is doing, is one of the simplest, low-stress ways to compound wealth over time. Investors regularly turn to companies with long track records of dividend raises. A particularly elite cohort is Dividend Kings, which have paid and raised their dividends for at least 50 consecutive years.
Supporting a gradually rising dividend payment requires earnings growth, a strong balance sheet, and the ability to endure downturns and recessions. Illinois Tool Works (ITW 0.23%), Procter & Gamble (PG 0.75%), and Coca-Cola (KO 1.21%) have these qualities in spades.
With an average yield of 2.63% among the three companies, investing $19,000 in each stock should produce $1,500 in passive income per year -- and likely more in subsequent years, considering these companies have raised their dividends every year for decades.
Here's why all three Dividend Kings are worth buying now.
Image source: Getty Images.
This is how you operate an industrial conglomerate
Look no further than Illinois Tool Works for a near-perfect dividend stock. Commonly known as ITW, the company has put on an operational clinic by streamlining its business and achieving high margin, gradual growth.
Over the last decade, ITW has increased its dividend by 233%, raised its earnings by 139%, grown its operating margin to above 25%, and reduced its outstanding share count by 29% thanks to stock buybacks.
ITW Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.
This is exactly what you want to see from a quality dividend stock. The dividend is steadily rising over time, the shares outstanding are slowly going down, and there's even margin expansion, which shows the business is improving in quality.
Not all Dividend Kings can repurchase stock and grow the dividend. ITW can do this because it operates seven highly successful segments, achieving diversification across cyclical industries. If it were too concentrated in a single industry, it would be far more challenging to steadily return capital to shareholders.ITW is trading near an all-time high, but it's a great business worth considering owning a piece of for the long term.
P&G's margin is the difference between a good and an outstanding dividend stock
Despite being in a completely different industry, P&G is a similar investment to ITW. P&G has done an excellent job raising the dividend, buying back stock, and boosting its margin.
PG Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.
P&G hasn't repurchased stock or raised its dividend at nearly the pace of ITW. But that's mainly because ITW, as an industrial conglomerate, has more growth opportunities than P&G, which is a low-growth, stodgy consumer staples company.
Still, P&G's margin expansion is in a league of its own. The strategic shift came between fiscal 2015 and fiscal 2017 when . By focusing on its best brands (quality) instead of quantity, P&G has streamlined its supply chain and unlocked consistent pricing power. Its pricing power came in clutch over the last few years, as P&G was able to offset higher input costs due to inflation.Here's a look at P&G's operating margin compared to similar companies.
PG Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.
Having a high operating margin may not sound like a big deal. However, it can mean the difference between supporting sizable dividend raises and buybacks or maybe only negligible buybacks. P&G earned $14.8 billion in trailing-12-month (TTM) net income, spent $9.09 billion on dividends, and paid $3.9 billion on buybacks. It had repurchased $7.4 billion in stock in fiscal 2023 and plans to buy back $5 billion to $6 billion in fiscal 2024. So, some of its stock buybacks were front-loaded at the beginning of the last fiscal year, which is why the TTM buybacks look lower.
P&G is funding a massive dividend program and needs the high margins to support a sizable buyback program. This quality is what separates P&G from the competition.
Get a high yield from Coca-Cola
co*ke hasn't reduced its outstanding share count at nearly the rates of ITW and P&G. But it does have a higher yield, now at 3.3% thanks to its recent dividend raise.
co*ke has raised its dividend at a faster rate than P&G. And despite being a smaller company, it is now paying nearly as much in dividends, with $8 billion in TTM dividends paid compared to $9.1 for P&G. co*ke also has incredibly impressive margins for a beverage maker. For comparison, PepsiCo's margin is just 14.1% -- just half of co*ke's margin.
KO Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.
co*ke is one of the most reliable pure-play dividend stocks out there. While co*ke has been and will probably continue to underperform in a market fueled by growth stocks, it does offer less downside risk than many companies. Of course, any stock could go to $0. But co*ke has a recession-resilient business that tends to do well no matter the economic cycle.
In this vein, investing in co*ke isn't necessarily about beating the market but preserving capital and generating passive income. It's a good pick if you are nearing retirement or are in retirement but may be unsuitable for investors early into their journeys or that have a high risk tolerance.
The through line
A common theme among ITW, P&G, and co*ke is that they are high-margin, high-quality businesses that directly reward shareholders. But the market knows it. ITW and P&G both have price-to-earnings (P/E) ratios over 26.6, while co*ke has a 24 P/E. Paying up for a stock sounds counterintuitive, but these companies have track records of growing into their valuations over time.
If you're looking for bargain-bin dividend choices, ITW, P&G, and co*ke are not for you.But if you're OK with paying a premium, these three stocks are certainly worth a closer look.
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kenvue. The Motley Fool recommends Unilever Plc and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
