In the current market environment, Chevron and Kimberly-Clark stand out as excellent choices for building a passive income stream, thanks to their high dividend yields and long track records of consistent dividend payments. When selecting dividend stocks, investors often need to weigh factors such as yield, payment history, growth rate, and payout sustainability.
For instance, even a company like Broadcom, with robust free cash flow and rapidly growing dividends, may have a relatively low dividend yield due to strong stock performance. Conversely, some companies may appear to offer stable dividends simply because their yields have been inflated by falling share prices. However, Chevron and Kimberly-Clark offer the rare combination of both high dividend yields and high safety.
Despite the inherent volatility of the oil and gas industry, Chevron has demonstrated the reliability of its dividend policy with an impressive 37-year streak of consecutive dividend increases. Its current dividend yield stands at 4%. Last November, the company outlined its development plan through 2030, projecting at least 10% growth in free cash flow and earnings per share, assuming Brent crude prices remain around $70 per barrel (oil was near $60 at the time of writing). Even after accounting for dividend payouts and capital expenditures, Chevron can achieve free cash flow breakeven with Brent prices as low as $50 per barrel, providing a substantial buffer against industry downturns. Should oil prices fall below $50, the company could still sustain operations thanks to its strong balance sheet or by reducing expenditures.
In the consumer goods sector, Kimberly-Clark, a paper products specialist, boasts a portfolio of well-known brands. In November, the company announced its acquisition of Kenvue, expected to be completed by the end of 2026.
Kimberly-Clark’s stock is currently trading at a 12-year low, below $100 per share. The stock has faced recent pressure due to stagnant growth, rising costs, and weak pricing power, which have squeezed profit margins. Kenvue, the acquisition target, faces similar challenges, and the integration process may encounter difficulties in its early stages. However, Kimberly-Clark’s management is confident in achieving billions in annualized synergies and expects the deal to contribute to profit growth starting the second year after completion.
Despite the broader industry slowdown, Kimberly-Clark announced on January 27th that it would raise its quarterly dividend from $1.26 to $1.28 per share, extending its streak of consecutive dividend increases to 54 years and cementing its status as a “Dividend King” (a company with over 50 years of consecutive dividend increases). The company’s projected 2025 free cash flow of $1.7 billion comfortably covers its dividend payout of $1.66 billion, underscoring the sustainability of its dividends.
With a current dividend yield of 5.2% and a forward price-to-earnings ratio of just 13.1, Kimberly-Clark presents compelling value for investors seeking long-term passive income.
These two companies, with their exceptional dividend safety and attractive yields, offer investors a rare opportunity for passive income allocation in the current market.
