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All It Takes Is $3,000 Invested In Each Of These 3 Dividend Kings To Help Generate $280 In Passive Income In 2025
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There are plenty of ways to generate passive income, such as real estate, bonds, certificates of deposit, savings accounts, and more. You can even generate passive income from holding stocks.
Some companies choose to pass along a portion of their profits to shareholders through dividends, which is a way to gain passive income without selling shares. The best dividend-paying companies have track records for increasing payouts, solid yields, and runways for future earnings growth that can support more dividend raises.
An especially elite cohort of dividend stocks are Dividend Kings, which have raised their payouts for at least 50 consecutive years. Illinois Tool Works (NYSE: ITW), Stanley Black & Decker (NYSE: SWK), and Target (NYSE: TGT) are three standout Dividend Kings. Investing $3,000 in each stock should generate about $280 in passive income in 2025 based on the yield of each stock at the time of this writing. However, you can expect the amount of passive income to increase every year if each company continues raising its payout.
Here's why all three dividend stocks are great buys for the new year.
Image source: Getty Images.
An industrial powerhouse with a winning business model
Illinois Tool Works, commonly known as ITW, is down about 8% during the past month. The sell-off presents a unique opportunity for investors to scoop up shares of this proven winner.
A wave of split-ups is sweeping the industrial sector. GE has had success operating under three separate stand-alone business units -- GE Aerospace, GE Vernova, and GE HealthCare Technologies. Honeywell International may soon follow suit by spinning off its aerospace segment. FedEx just announced the spin-off of its freight business. It seems the conglomerate business model is out of favor, but that doesn't mean it can't be a good fit for companies like ITW.
ITW is an excellent example of a well-executed conglomerate business model. The company focuses mainly on business-to-business sales and has seven different business segments -- automotive, food equipment, test and measurement and electronics, welding, polymers and fluids, construction products, and specialty products. Despite their differences, all seven segments are known for generating high operating margins and steady growth, with no single segment making up too large a share of the broader business.
ITW gives a lot of freedom to each segment, encouraging what it calls customer-back innovation. Instead of ITW developing new products and hoping they stick, the company listens to its customers -- knowing that if it can solve their problems, customers are more likely to increase their order volumes.
The strategy has worked marvelously, leading to rapidly expanding operating margin and revenue.
ITW Revenue (TTM) data by YCharts
The company plans to build on that success. By 2030, ITW wants to hit a 30% operating margin -- setting the stage for 9% to 10% annual earnings-per-share (EPS) growth, 4% annual organic growth, and 7% annual dividend increases.
ITW is a compelling stock to buy now because it has an impressive track record of increasing sales, profit, and dividends, as well as repurchasing stock to accelerate EPS growth. With a 2.3% yield, a 23.9 price-to-earnings (P/E) ratio, and a forward P/E of 22.2, ITW stands out as a well-rounded Dividend King to buy in 2025 and hold for years if not decades to come.
By investing $3,000 in ITW you can expect to earn about $69 in passive income in 2025.
An exciting turnaround play with a high yield
Stanley Black & Decker investors have endured a roller-coaster ride in recent years -- with many more dips than rises. The stock is hovering around its 52-week low and is down more than 60% from its all-time high.
The toolmaker is in the midst of a drawn-out turnaround that has gone reasonably well but could take longer than expected. During the pandemic, Stanley Black & Decker enjoyed a sales boom as customers flocked to do-it-yourself home improvement projects. However, the company grossly misinterpreted the boom, mistaking it for a sustained increase in demand. The sales surge proved temporary, and Stanley Black & Decker was left overextend and vulnerable to a pullback.
To its credit, the company has made impressive progress cutting costs. And through all the drama, it has continued increasing its annual payout to keep its dividend streak alive. The languishing stock price, paired with ongoing raises, has pushed Stanley Black & Decker's dividend yield up to about 4.1%. For context, this was a stock that yielded closer to 2% before the pandemic.
Stanley Black & Decker is only worth considering if you believe in the company's ability to turn its business around and are willing to endure the possibility of more volatility. The company is susceptible to changes in interest rates. Higher interest rates mean higher borrowing costs for Stanley Black & Decker's debt financing and could lead its customers to cut spending. If the Federal Reserve slows the pace of interest rate cuts, it could prolong the company's turnaround.
Stanley Black & Decker could quickly begin to look cheap once it returns to sustained growth. And the yield is a sizable incentive to buy and hold the stock through this period. All told, I think Stanley Black & Decker has fallen far enough and is worth a closer look in 2025.
A $3,000 investment in Stanley Black & Decker would earn you about $123 this year.
A cash cow high-yield value stock
The sell-off in Target stock embodies broader pullbacks in consumer spending. But other retailers like Walmart and Costco Wholesale are hitting all-time highs as they have delivered value for customers across staples and discretionary categories. So there's only so much Target can blame on consumer behavior trends before investors lose patience. And given the sell-off in the stock, many already have.
Target has failed to consistently execute in recent years, as evidenced by flatlining sales growth and wild margin swings.
TGT Revenue (TTM) data by YCharts
So in many ways, the stock's decline is well deserved. But Target has gotten too cheap to ignore -- with a P/E ratio of 14.4, a forward P/E ratio of 14.3, and a yield of 2.9%.
The minimal difference in Target's P/E and its forward P/E shows that analysts expect Target's earnings to be little changed during the next 12 months. Like Stanley Black & Decker, Target is prone to swings in the economic cycle and is being hurt as high interest rates persist. Target is also vulnerable to an overall slowdown in the economy or a recession, which would likely lead to reduced sales on its higher-margin discretionary items.
Still, Target is worth buying if you believe in the brand's longevity, the company's ability to continue expanding its e-commerce and curbside offerings, and the value of the in-store Target experience. Even with projected lower earnings, Target can easily afford to continue raising its payout, making it an excellent dividend stock to buy and hold through periods of volatility.
A $3,000 investment in Target will earn you $87 in passive income in 2025.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $356,514!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $47,762!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $485,594!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of December 30, 2024
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale, FedEx, GE HealthCare Technologies, Target, and Walmart. The Motley Fool recommends GE Aerospace and Illinois Tool Works. The Motley Fool has a disclosure policy.
