With the S&P 500 (^GSPC -0.29%) yield at just 1.2%, it has become more challenging to find companies or exchange-traded funds (ETFs) that can provide a steady and sizable stream of passive income. But that doesn't mean there aren't viable options if you know where to look.
Kimberly-Clark (KMB 1.09%), J.M. Smucker (SJM 1.17%), and the Vanguard Total Corporate Bond ETF (VTC 0.20%) all yield over 3%. Here's why these two dividend stocks and this ETF are worth buying now.
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For a high-yield dividend opportunity at bargain prices, Kimberly-Clark stock is a great choice
Scott Levine (Kimberly-Clark): It's hard to argue with the allure of picking up a leading consumer staples stock like Kimberly-Clark and watching the ample dividend income consistently roll in -- as it has done at increasingly higher amounts for over five decades, resulting in the stock earning the title of Dividend King.
Skeptics will often balk at high-yield dividend stocks for fear that the company is not standing on firm financial footing. However, this is hardly the case with Kimberly-Clark. Income investors would be well-served to strongly consider clicking the buy button on the stock -- along with its 3.9% forward-yielding dividend -- while it's hanging on the discount rack.
With a history dating back to 1872, Kimberly-Clark has grown into a dominant player in the consumer staples industry. Whether you're a new parent who relies on Huggies to protect your little one or a teacher with a box of Kleenex on your desk, the odds are extremely strong that you're using a Kimberly-Clark brand -- or several -- on a daily basis.
With such an impressive portfolio of brands, ranging from baby care to adult care, Kimberly-Clark generates strong and consistent cash flow. This cash flow should assuage skeptics' concerns that the dividend is on shaky ground.
KMB Free Cash Flow Per Share (Annual) data by YCharts.
Over the past decade, it's clear that Kimberly-Clark has generated free cash flow from which it can source its payout to shareholders. And it's not only the cash flow that speaks to the security of the payout. Over the past five years, Kimberly-Clark has averaged a 76.6% payout ratio.
As a Dividend King, Kimberly-Clark has demonstrated a steadfast commitment to rewarding shareholders. With the stock trading at 16.3 times trailing earnings, a discount to its five-year average price-to-earnings (P/E) ratio of 22.5, today seems like a great time to load up the shopping cart with Kimberly-Clark stock.
J.M. Smucker is too deep in the bargain bin to pass up
Daniel Foelber (J.M. Smucker): Packaged-food companies like J.M. Smucker have gotten hammered in recent months, with many industry leaders hovering around multi-year lows.
Inflation is taking its toll on the industry as buyers watch grocery spending. Packaged-food companies face a one-two punch of weakening pricing power and demand for their products, so it's understandable why the industry is out of favor. But the sell-off has arguably gone too far, especially for a top company like J.M. Smucker.
The company's brands -- like Jif, Uncrustables, Milk-Bone, Hostess, and others -- span various categories, including coffee, frozen foods, snacks, spreads, pet food, baked foods, and more. J.M. Smucker's growth hasn't been stellar in recent years, but revenue is still at an all-time high, and margins are excellent.
What's more, the company sports a P/E ratio of just 10.5. That's simply too cheap to ignore for a balanced company with solid brands.
To top it all off, J.M. Smucker has 23 consecutive years of dividend increases and a yield of 3.8%. That's a far longer streak of increasing the payout compared to peers like Kraft Heinz, General Mills, Campbell's, and Conagra Brands. However, investors looking for the ultimate track record among packaged-food companies should take a closer look at Dividend King Hormel Foods -- which has 59 consecutive years of dividend raises.
With its price around a five-year low, investors are getting an excellent opportunity to scoop up shares of J.M. Smucker while boosting their passive income stream.
By investing $2,500 in J.M. Smucker, you can expect to earn about $95 in passive income in 2025.
History suggests this corporate bond is a good value
Lee Samaha (The Vanguard Corporate Bond ETF): If you ever heard the investment maxim "Don't fight the Fed" and are sympathetic to it, then this 4.5%-yielding corporate bond ETF will interest you.
For the uninitiated, this isn't anything to do with avoiding a punchup with Roger Federer, a package delivery worker, or an FBI agent. Instead, it means not taking a position on interest rates that's in opposition to the direction of the Federal Reserve's interest rate movements.
However, that's precisely what the bond market has done recently. The chart below shows the Federal Reserve reducing its interest rates. Still, the bond markets are raising interest rates by selling bonds -- the benchmark 10-year Treasury yield is higher than when the Federal Reserve cut rates.
10-Year Treasury Rate data by YCharts.
Furthermore, as shown below, market rates and high-quality corporate bonds tend to have an inverse relationship. This makes perfect sense, as when Treasury yields go up, corporate bond yields go up, meaning corporate bond prices go down.
If you believe that history will prevail and the market fighting the Fed will end, this bond ETF is an excellent buy. It has an "ETF of ETF" structure whereby it invests in three other Vanguard ETFs, all of which hold no corporate bonds with a lower than (low default risk) "BBB" rating. If corporate bond yields decline (and bond prices rise) this ETF could generate significant returns, and it doesn't hurt that investors are buying in at a 4.5% yield.