Investing by equal elements in these three dividend shares produces a mean yield of three%.
Traders apprehensive a couple of inventory market sell-off might really feel the urge to promote out of their positions and run for the exits. However long-term traders know that it is a mistake to overtake your investing technique based mostly on emotion.
A greater method is to make sure you are invested in firms that fit your danger tolerance and will help you obtain your funding targets. Dividend shares are an effective way to generate passive earnings with out the necessity to promote out of a place.
Notably secure choices embody firms like Lockheed Martin (LMT -0.21%), American Water Works (AWK -0.69%), and Kenvue (KVUE -0.88%), which have recession-resistant enterprise fashions and emphasize dividend raises. Here is why all three dividend shares are value shopping for in 2025.
Picture supply: Getty Photographs.
1. Lockheed Martin
After its inventory worth reached an all-time excessive earlier this yr, Lockheed Martin and its protection contractor friends have offered off significantly over the previous couple of months, probably resulting from valuation issues. Lockheed’s price-to-earnings (P/E) ratio is now again right down to 17.6 — proper round its 10-year median P/E of 17.9.
Regardless of a broad portfolio of segments spanning aeronautics, missiles and fireplace management, rotary and mission techniques, and area (primarily satellites), Lockheed Martin tends to have a comparatively low valuation due to its mediocre progress prospects. With the overwhelming majority of gross sales going to the U.S. authorities, Lockheed’s high buyer is unlikely to make sweeping modifications to the protection finances in a single day.
Nonetheless, traders can pencil in gradual and regular progress for Lockheed over time, making it a dependable dividend inventory. Lockheed simply raised its dividend for the twenty second consecutive yr and incorporates a yield of two.7% — which is significantly increased than the S&P 500‘s yield of simply 1.2%.
Traders apprehensive a couple of inventory market sell-off in 2025 can relaxation straightforward realizing that Lockheed has an in depth order backlog and may do nicely it doesn’t matter what the financial scenario could be. Lockheed completed the quarter ended Sept. 29 with a $166 billion order backlog unfold throughout its 4 segments. For context, Lockheed is guiding for 2024 gross sales of $71.25 billion.
Add all of it up, and Lockheed is a secure dividend inventory at a very good worth to purchase in 2025.
2. American Water Works
The regulated water utility gives ingesting water and wastewater companies to prospects in California, Hawaii, the Midwest, the Mid-Atlantic, and elements of the South. The enterprise mannequin is pretty simple. American Water Works delivers important companies to a rising inhabitants and works with regulators and authorities businesses to set costs so prospects aren’t overcharged. Nonetheless, American Water Works earns sufficient to take care of operations and put money into new infrastructure.
The funding thesis is centered round a rising, wholesome dividend. The corporate targets an annual progress price of seven% to 9% per yr whereas protecting a payout ratio of 55% to 60%. By protecting a lid on its payout ratio, the corporate maintains a wholesome stability sheet and nonetheless has cash left over to reinvest within the enterprise.
Shares of American Water Works have offered off about 13% previously three months, bringing the yield again as much as 2.5%.
American Water Works is not the kind of firm that can gush progress. Nonetheless, it may well do nicely it doesn’t matter what the economic system or broader inventory market are doing, making it a dependable dividend inventory to purchase in 2025 for risk-averse traders.
3. Kenvue
Shopper healthcare firm Kenvue is about as boring as American Water Works. Nonetheless, nothing is boring concerning the passive earnings alternative for Kenvue traders, who can get a 3.8% yield from the inventory.
The corporate’s manufacturers embody recognizable names like Aveeno, Band-Support, Listerine, Neutrogena, and Tylenol. There’s not a whole lot of new innovation at Kenvue; fairly, the thought is to take care of business management of current manufacturers to foster reasonable quantity and worth will increase over time.
Kenvue spun off from Johnson & Johnson in August 2023, inheriting J&J’s Dividend King streak. Kenvue’s first dividend increase as an unbiased firm got here on July 25, when it introduced a modest 2.5% improve to the quarterly payout. It is not sizable by any means, however Kenvue already has a excessive yield, even in comparison with different client staples shares.
Activist investor Starboard Worth acquired a stake in Kenvue, believing there’s worth to unlock from its high manufacturers. It stays to be seen if Kenvue will enter a quicker tempo of dividend progress and buybacks sooner or later. However Starboard’s stake is an encouraging signal that Kenvue has extra potential than meets the attention.
Kenvue is a high-yield inventory value shopping for for passive earnings traders. Demand for Kenvue’s merchandise ought to maintain pretty regular it doesn’t matter what the economic system is doing, making it a sensible choice for folk centered on dividend earnings and capital preservation fairly than capital appreciation.
Daniel Foelber has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Kenvue. The Motley Idiot recommends Johnson & Johnson and Lockheed Martin and recommends the next choices: lengthy January 2026 $13 calls on Kenvue. The Motley Idiot has a disclosure coverage.
