Eager for Additional Passive Income in 2025? These 3 Dividend Shares Might Fulfill Your Desire.
Exploring methods to enhance financial freedom, increasing passive income is a promising route. Various strategies exist for individuals seeking more financial freedom. Inverting in dividend stocks could be an excellent approach to stimulate cravings for higher passive income. Three enticing options for those eager to supplement their income in the upcoming year include Kraft Heinz (KHC 0.43%), PepsiCo (PEP 0.29%), and Mondelez International (MDLZ 0.60%).
A palatable dividend
At present, Kraft Heinz disburses a tempting dividend. The food corporation, famous for iconic brands such as Heinz, Philadelphia, Kraft Mac & Cheese, Ore-Ida, Velveeta, and Lunchables, boasts a dividend yield of 5.2%. That significantly surpasses the S&P 500's dividend yield (1.2%). This above-average rate is sure to satisfy your appetite for more income. For perspective, every $100 invested in Kraft Heinz stock would yield approximately $5.20 in annual dividend income, compared to around $1.20 from a similar investment in an S&P 500 index fund.
Higher-yielding dividends typically come with a higher risk of reduction. This has been the case with Kraft's dividend in the past. It reduced its payout by 36% in 2019, lowering it to its current level, to save more cash for debt reduction and increased financial flexibility.
This strategy has been successful. The company's leverage ratio is now below its 3 times target (2.9 times at the end of the third quarter). Moreover, Kraft generates ample free cash flow to cover its current dividend level ($2 billion in free cash flow over the first nine months of the year compared to nearly $1.5 billion in dividend payments). This financial flexibility allowed it to buy back $350 million of its shares. Additionally, the company expects its earnings and free cash flow to increase over the long term, which should bolster its high-yielding dividend's sustainability.
Delighting dividend investors for more than half a century
PepsiCo oversees several globally recognized food and beverage brands, including Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker, and SodaStream. Many of these iconic brands generate over $1 billion in annual retail sales.
The company has an impressive track record of paying dividends. While Kraft Heinz has needed to reduce its payment in the past, PepsiCo has increased its dividend for 52 consecutive years. This achievement qualifies it as a Dividend King, a company with 50 or more years of consecutive annual dividend increases. It currently offers a dividend yield of 3.5%.
PepsiCo is projected to pay investors $7.2 billion in dividends this year. It also plans to return another $1 billion to shareholders through share repurchases. The company can easily afford to distribute this money to investors thanks to its robust cash flow and balance sheet (it had approximately $8 billion in cash and short-term investments at the end of Q3). Meanwhile, with its earnings continuing to grow, PepsiCo should maintain its position as a leading dividend stock.
Catering to investors' craving for more income
Mondelez manages several renowned snacking brands, including Oreo, Milka, Cadbury, Ritz, Chips Ahoy!, and Clif. It's the world's largest biscuit seller and has the second-largest share of the global chocolate market.
The global snacking powerhouse currently pays a dividend yielding 3.1%. The company has expanded its payout by more than 10% on an annual basis over the past five years, including an 11% increase earlier this year.
Mondelez generates substantial cash. It produced $2.5 billion in free cash flow over the first nine months of the year. This easily covered its dividend outlay ($1.7 billion). It utilized this excess free cash and its solid balance sheet to repurchase $1.2 billion of its stock. The company's growing cash flow should enable it to continue raising its dividend.
In the context of investing for higher passive income, Mondelez International's dividend yield of 3.1% might also be appealing for some investors, surpassing the average yield of the S&P 500. Additionally, Mondelez has consistently increased its dividend payout by more than 10% over the past five years, demonstrating its commitment to shareholder returns.
