Want $5,000 a Year In Passive Income? Buy These 3 Dividend Stocks and Hold for 5 Years

Investors looking to create meaningful passive income streams for retirement have a number of considerations to keep in mind. Building passive income streams can come from many different asset classes, for starters. Investors need to decide if they’re looking more for outright stability (government Treasury bonds and other fixed income securities can provide very stable and low-risk income). Or, do investors want to earn yield while investing in other higher-growth assets in areas of the market such as real estate or other equities. 

That’s a tough question to answer, and really boils down to an individual investor’s time horizon and risk profile. However, for those looking to add a little upside on top of a 5% or higher yield (I’m going to assume an investor has around $100,000 to invest in dividend stocks in this piece) to create $5,000 a year in passive income, here are three of the top S&P 500 names I’d suggest taking a look at. 

As noted, these are each companies I’d consider long-term holds (longer than five years). 

Altria Group (MO)

Altria Group (NYSE:MO | MO Price Prediction) has been one of my top dividend stocks on most lists for some time now, and there is good reason for this.

I know, we’re talking about a cigarette maker here at its core, and that may turn off some investors from the get go. That makes sense, and this is a business I’m not completely crazy about, for this reason.

However, from a fundamental standpoint, it’s hard to find a company with a 6.3% dividend yield and a balance sheet like Altria’s, outside of a few bespoke ideas. Notably, this yield has actually come down, as many market participants appear to view the company in a similar light. But with more than 50 years of consecutive dividend increases over time, this is a name that is most often linked to the sort of high-quality dividend stocks many investors seeking yield rightly gravitate toward. 

With a payout ratio that’s now hovering around 80%, some investors may be concerned at the company’s future pace of dividend increases, and I think that’s fair sentiment. But the high up-front yield investors get with Altria more than makes up for a relative lack of dividend growth (at least compared to historical levels) in the future. 

With a very predictable cash flow generating business model, and a shift toward smokeless tobacco and pouches as a primary revenue driver moving forward, this is a company I think more investors can (and will) get behind. 

Pfizer (PFE)

Pharmaceutical juggernaut Pfizer (NYSE:PFE) isn’t the company it was in the post-pandemic environment. Spurred by its first-mover advantage in the development of the Covid vaccine, shares of PFE stock surged to a similar degree as many of the Covid-beneficiary names of that era. 

However, since the onset of the pandemic, most investors won’t be surprised to learn that via a combination of competition for Covid vaccines and waning demand for these shots, revenue growth in this key business line has faded away. That reality has led to a sharp decline in the company’s stock price from around $60 per share at its 2021 high to right around $25 per share at the time of writing.

What this decline has also meant is that Pfizer’s dividend yield has surged to the 7% level, a level typically reserved for companies in distress or at risk of having their distributions cut.

I’m of the view that Pfizer’s stable (15 consecutive years of dividend hikes) and growing yield is one that still makes sense to invest in. Given Pfizer’s high-quality drug portfolio, and strong pipeline of new prospective drugs, I don’t think the growth train has stalled yet. Slowed, maybe, but not stalled.  

Dow Inc. (DOW) 

Chemical industry heavyweight Dow Inc. (NYSE:DOW) is an absolute behemoth in its sector, with a dominant market share in most key chemical industries the company targets as its core. This has led to very strong and stable cash flow growth over decades, and something investors have come to expect will lead to dividend growth over time. 

With a current 5.7% dividend yield, it’s clear more investors are coming to the side of the boat that think this company’s dividend yield is sustainable. That’s because in the past, Dow’s yield has approached double-digit territory, implying that the market was discounting a significant chance of a dividend cut at some point down the line.

With prudent cash management and a team that’s focused on managing through various economic cycles, this is one cyclical stock I think is worth buying on pullbacks. 

I’m not considering Dow just yet, but if this stock does take a dip (as it can, due to cyclical challenges), I’d be buying this one in a heartbeat.