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3 Safe Dividend Stocks That Generate Passive Income

Raging bull markets have a habit of rewarding growth and flare, and discounting value. When times are good, risk appetite grows as investors search for the next big thing. But in a bear market, safe stocks can be an investor’s best friend.
Investing in equal parts of Watsco (NYSE: WSO), Air Products and Chemicals (NYSE: APD), and United Parcel Service (NYSE: UPS) gives an investor an average dividend yield of 3.2%. After a period of five years, an investor could expect a $10,000 investment to earn at least $1,500 in passive dividend income. These three Motley Fool contributors reveal what they think makes each dividend stock a great buy now.
Image source: Getty Images.

A market leader in a consolidating market
Lee Samaha (Watsco): The business model of the heating, ventilation, and air conditioning (HVAC) product-distribution company is simple. When an HVAC unit breaks down, consumers and business owners call a contractor who orders equipment parts and supplies from Watsco and then repairs the unit.
Watsco distributes to myriad contractors while buying from a few HVAC manufacturers. Operating as the market leader (Watsco’s next biggest competitor has half its revenue) in a highly fragmented market, the company has consolidated the market with a slew of acquisitions over the years. In doing so, Watsco has continually expanded its geographic reach and scale. Moreover, since most of its sales go to the replacement market and 65% to 70% of its sales go to residential customers, Watsco operates in relatively safe markets. Moreover, Watsco has plenty of growth opportunities ahead.
For example, it can continue to grow through acquisitions. In addition, Watsco can grow by expanding the installed base of HVAC units in the U.S. Furthermore, it has a market share growth opportunity due to its technological edge as a larger company (digitized product information and e-commerce platforms for contractors). Currently trading with a 3.4% dividend yield, Watsco fits the bill as a relatively safe company capable of growing its dividend for years to come.
This noble stock has a history of paying investors to do nothing 
Scott Levine (Air Products and Chemicals): When looking for safe stocks that offer compelling dividends, some of the best stocks to consider are Dividend Aristocrats. This exceptional group of stocks may not be the first consideration for investors seeking sky-high dividend yields, but there’s a comfort to be found in the belief that even during tumultuous times in the markets, it’s likely that Dividend Aristocrats — like Air Products and Chemicals and its stock, which offers a forward dividend yield of 2.8% — will not merely sustain their payouts but raise them too.
Supplying industrial gases to a wide swath of customers, from automotive to medical, to food and beverages, Air Products mitigates the risk of a downturn in any of the individual industries that it serves — something which should appeal to investors on the more conservative end of the risk spectrum. This is just one of the reasons why the company has been able to consistently raise its distribution for nearly 40 years, earning it a place among the Dividend Aristocrats.
Over the past eight years, however, management has paid particularly close attention to rewarding shareholders. From 2014 to 2022, Air Products has increased its payout at a compound annual growth rate of 10%. Concerned that the company’s rising payout has come at the cost of its financial health? Think again. From 2012 through 2021, Air Products has averaged a conservative payout ratio of 57.8%. 
Ready to gas up your portfolio with Air Products but afraid of a high price tag? No need to worry; shares are currently located on the sale rack. While the stock’s five-year average price-to-operating cash flow ratio is 17.7, shares are trading hands today at 15.7 times operating cash flow.
Passive income is the cherry on top of this growth story
Daniel Foelber (UPS): February 2021 marked a turning point in the stock market as many pandemic winners like Peloton Interactive and Zoom Video Communications began suffering major drawdowns. Fast-forward to today, and many major growth stocks are down 70% or more from their all-time highs.
UPS is an example of a company that benefited from more people staying home and ordering things online. But pandemic-induced tailwinds don’t make or break its long-term success.
Even after 2022’s brutal sell-off, UPS is one of the few industrial stocks and “pandemic winners” that continues to outperform the S&P 500, Nasdaq Composite, its rival, FedEx, and the industrial sector as a whole.

UPS Total Return Level data by YCharts
UPS provides an excellent example of a great company that is worth owning over the long term. The company has been incredibly successful in sustaining growth and retaining a high operating margin during a time when so many other companies are facing margin compression. What’s more, UPS continues to rake in tons of free cash flow (FCF) to support its dividend, which now has a yield of 3.4%.
UPS posted phenomenal growth in 2020 and 2021, so lapping those numbers this year is a tall order. Yet it still expects revenue of $102 billion, which would be around a 5% year-over-year increase and mark the first year the company exceeds $100 billion in revenue.
So far, UPS has given investors every reason to believe it is a company that can perform in good times and bad while also being a lockdown source of passive income. Those are traits that investors look for no matter the market cycle. All told, you would be hard-pressed to find an industry-leading company quite like UPS, which blends excellent management, massive market share in its industry, growth, value, and income.
Daniel Foelber has the following options: long January 2024 $145 calls on Zoom Video Communications, long January 2024 $45 calls on Peloton Interactive, short January 2024 $150 calls on Zoom Video Communications, and short January 2024 $50 calls on Peloton Interactive. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx, Peloton Interactive, Watsco, and Zoom Video Communications. The Motley Fool has a disclosure policy. –

Raging bull markets have a habit of rewarding growth and flare, and discounting value. When times are good, risk appetite grows as investors search for the next big thing. But in a bear market, safe stocks can be an investor’s best friend.

Investing in equal parts of Watsco (NYSE: WSO), Air Products and Chemicals (NYSE: APD), and United Parcel Service (NYSE: UPS) gives an investor an average dividend yield of 3.2%. After a period of five years, an investor could expect a $10,000 investment to earn at least $1,500 in passive dividend income. These three Motley Fool contributors reveal what they think makes each dividend stock a great buy now.

Image source: Getty Images.

A market leader in a consolidating market

Lee Samaha (Watsco): The business model of the heating, ventilation, and air conditioning (HVAC) product-distribution company is simple. When an HVAC unit breaks down, consumers and business owners call a contractor who orders equipment parts and supplies from Watsco and then repairs the unit.

Watsco distributes to myriad contractors while buying from a few HVAC manufacturers. Operating as the market leader (Watsco’s next biggest competitor has half its revenue) in a highly fragmented market, the company has consolidated the market with a slew of acquisitions over the years. In doing so, Watsco has continually expanded its geographic reach and scale. Moreover, since most of its sales go to the replacement market and 65% to 70% of its sales go to residential customers, Watsco operates in relatively safe markets. Moreover, Watsco has plenty of growth opportunities ahead.

For example, it can continue to grow through acquisitions. In addition, Watsco can grow by expanding the installed base of HVAC units in the U.S. Furthermore, it has a market share growth opportunity due to its technological edge as a larger company (digitized product information and e-commerce platforms for contractors). Currently trading with a 3.4% dividend yield, Watsco fits the bill as a relatively safe company capable of growing its dividend for years to come.

This noble stock has a history of paying investors to do nothing 

Scott Levine (Air Products and Chemicals): When looking for safe stocks that offer compelling dividends, some of the best stocks to consider are Dividend Aristocrats. This exceptional group of stocks may not be the first consideration for investors seeking sky-high dividend yields, but there’s a comfort to be found in the belief that even during tumultuous times in the markets, it’s likely that Dividend Aristocrats — like Air Products and Chemicals and its stock, which offers a forward dividend yield of 2.8% — will not merely sustain their payouts but raise them too.

Supplying industrial gases to a wide swath of customers, from automotive to medical, to food and beverages, Air Products mitigates the risk of a downturn in any of the individual industries that it serves — something which should appeal to investors on the more conservative end of the risk spectrum. This is just one of the reasons why the company has been able to consistently raise its distribution for nearly 40 years, earning it a place among the Dividend Aristocrats.

Over the past eight years, however, management has paid particularly close attention to rewarding shareholders. From 2014 to 2022, Air Products has increased its payout at a compound annual growth rate of 10%. Concerned that the company’s rising payout has come at the cost of its financial health? Think again. From 2012 through 2021, Air Products has averaged a conservative payout ratio of 57.8%. 

Ready to gas up your portfolio with Air Products but afraid of a high price tag? No need to worry; shares are currently located on the sale rack. While the stock’s five-year average price-to-operating cash flow ratio is 17.7, shares are trading hands today at 15.7 times operating cash flow.

Passive income is the cherry on top of this growth story

Daniel Foelber (UPS): February 2021 marked a turning point in the stock market as many pandemic winners like Peloton Interactive and Zoom Video Communications began suffering major drawdowns. Fast-forward to today, and many major growth stocks are down 70% or more from their all-time highs.

UPS is an example of a company that benefited from more people staying home and ordering things online. But pandemic-induced tailwinds don’t make or break its long-term success.

Even after 2022’s brutal sell-off, UPS is one of the few industrial stocks and “pandemic winners” that continues to outperform the S&P 500, Nasdaq Composite, its rival, FedEx, and the industrial sector as a whole.

UPS Total Return Level data by YCharts

UPS provides an excellent example of a great company that is worth owning over the long term. The company has been incredibly successful in sustaining growth and retaining a high operating margin during a time when so many other companies are facing margin compression. What’s more, UPS continues to rake in tons of free cash flow (FCF) to support its dividend, which now has a yield of 3.4%.

UPS posted phenomenal growth in 2020 and 2021, so lapping those numbers this year is a tall order. Yet it still expects revenue of $102 billion, which would be around a 5% year-over-year increase and mark the first year the company exceeds $100 billion in revenue.

So far, UPS has given investors every reason to believe it is a company that can perform in good times and bad while also being a lockdown source of passive income. Those are traits that investors look for no matter the market cycle. All told, you would be hard-pressed to find an industry-leading company quite like UPS, which blends excellent management, massive market share in its industry, growth, value, and income.

Daniel Foelber has the following options: long January 2024 $145 calls on Zoom Video Communications, long January 2024 $45 calls on Peloton Interactive, short January 2024 $150 calls on Zoom Video Communications, and short January 2024 $50 calls on Peloton Interactive. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx, Peloton Interactive, Watsco, and Zoom Video Communications. The Motley Fool has a disclosure policy.

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