4 Best Dividend Stocks For Passive Income For 2024

There are many ways to create passive income. One popular way is through investing in dividend-paying stocks. With stock market volatility and below-average returns the past few years creating a challenge for investors, the idea of getting paid regular quarterly dividends from the stocks you own is especially appealing. For this article I’ll focus on using dividend stocks for passive income, and four of the best dividend stocks for the new year.

Dividend Stocks And Passive Income

Dividend stocks can be a core part of a passive income portfolio. Consistent dividend payments show a company’s stability and profitability, committed to paying their shareholders a portion of the profits year after year. And, by investing in stocks that pay consistent dividends, that passive income still has the same potential as any other stock to provide additional returns through price appreciation.

Understanding Dividend Stocks

Quality dividend stocks are normally found in companies that are well established. Not all stocks pay dividends. Dividend yield stocks usually pay their shareholders in cash, but dividends can also be paid in the form of stock. I’ll focus on cash dividends in this article.

There are always risks when investing in dividend stocks. Even the most established company can experience a down-turn, cut its dividends or quit paying them all together. Investors should also be aware that any company that seems to show an especially high dividend yield ratio should be examined closely. This could be because the company’s stocks are dropping in value, making the dividend ratio higher than normal. That might indicate an undervalued stock, but could also be a sign of increasing risk to the underlying business that could ultimately put the regular dividend payment in jeopardy.

Leveraging Dividend Stocks For Passive Income

Dividend stocks create passive income by paying out regularly-scheduled dividends. U.S. stocks typically pay quarterly. If you prefer not to own individual stocks, you can consider investing in dividend-paying exchange-traded funds.

When creating an investment portfolio based on providing passive income, it is especially important to look at the payout ratio and profit margins of the company you’re considering investing in. A payout ratio close to, and especially above 100% is a red flag.

These companies are using almost all their profits to pay their shareholders or are borrowing money to pay the dividends. This is unsustainable and even if the dividend yield is high, not worth the risk in my opinion. Companies with too high a dividend ratio or too low a profit margin may be at greater risk of soon cutting or pausing their dividend payouts.

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Benefits Of Passive Income

There are many benefits to having a passive income stream. Since the investor receives passive income without actively working for it, passive income can be a helpful supplement income to have while working; for times when you cannot work (if injured, for example), or for extra income that you do not have to work extra hours for. Passive income becomes especially important to many investors during their retirement years.

Those who are financially able to shift income completely passive and not work for a living, as is the goal of many retirees, the benefits are obvious. More free time, freedom to relocate, not relying on a job, vacation time at will, no work-related stress, no commute, plenty of time to look after health, more time to spend with family, and time to devote to non-career projects.

The Best Dividend Stocks For Passive Income

Dividend yielding stocks, like any stocks, always have risk. In my view, the four I’ve selected for this list show good potential to weather the current market storm compared to the average stock and the broader stock market. They all have reasonable profit margins and payout ratios, signs that the company is doing well in spite of stock price volatility. These are also stocks with strong liquidity, but still inexpensive enough in terms of valuation, as evidenced by a reasonable price to sales ratio. Here’s the group of four I chose to focus on.

1. Polaris (PII)

• Industry: Recreational Vehicles/Consumer Cyclical
• Market cap: $5 billion
• Stock price: $90.34
• Revenue (ttm): $9 billion
• EPS: $10.37
• Dividend yield: 2.9%
• Gross profit margin: 22.7%
• Payout ratio: 24.7%
• Price to sales ratio: 0.6
• Price to free cash flow: 15
• Latest dividend…