Investing in Income Stocks for 2025
For those on the hunt for reliable income stocks to boost passive income, 2025 presents some promising options. Recent years have seen high inflation and elevated interest rates, which have negatively affected financial outcomes and stock prices of major consumer brands. Yet, this situation has led to improved dividend yields for several leading companies.
Three contributors from Fool.com suggest looking into Target (TGT), Starbucks (SBUX), and Philip Morris (PM). Each of these companies offers a solid opportunity for increased shareholder dividends in the future.
Target: Strong Dividends at a Low Price
Jennifer Cybil (Target): It might be unexpected to consider Target a worthwhile investment right now, especially with a drop in sales. However, there’s a strong possibility for a rebound, and given its current low price paired with a substantial dividend yield, this could be an ideal entry point.
Target has faced numerous challenges, with share prices down 62% from their peak. While immediate recovery seems uncertain, the fact that customers remain hesitant about discretionary spending due to inflation is a significant hurdle. In the first quarter of 2025, sales dipped by 2.8% compared to last year, and comparable sales decreased by 3.8%.
On a positive note, key metrics like cost-cutting and operating profits increased by 19% year-on-year. Additionally, their digital business remains strong, with a 4.7% increase in digital sales for the same quarter last year, alongside a 35% rise in same-day delivery sales for its membership service.
The company has launched a new office aimed at improving efficiency through technology and data, a move that’s intended to enhance overall connectivity and speed in operations.
Interestingly, Target faced a similar predicament back in 2017 and made significant investments in digital channels before the pandemic shifted retail landscapes. It seems poised to repeat that strategy now. Shareholders may be frustrated by the stock decline, but they still benefit from reliable dividends. Target has been a dividend king, increasing payouts for 54 consecutive years, currently yielding 4.4%.
If you’re new to stock ownership, now could be a chance to buy at a favorable price, especially if you’re prepared to hold for a couple of decades, which could lead to rewarding dividends down the line.
Starbucks: An Alluring 2.6% Yield
John Ballard (Starbucks): Starbucks shares have lagged, not reflecting growth as the market has inched up over recent years. In fact, the company’s stock prices have barely shifted since 2019. Nonetheless, the dividend yield has grown to an attractive 2.61%.
The company has struggled with sales, but comparable store sales have stabilized somewhat, with just a 1% decline year-on-year for the second quarter of the fiscal year ending in March. The new CEO Brian Niccol appears to be steering the brand toward a more customer-centric approach, aiming to transform Starbucks locations into social hubs once again. This approach is based on the notion that putting customers first tends to set the stage for broader success.
In essence, Starbucks is like the McDonald’s of coffee. This could be seen as both a plus and a minus. But for dividend investors, it’s a strong position. With locations globally, Starbucks can deliver steady financial results and consistent dividend payouts.
Over the last five years, dividends have risen from $1.44 in 2019 to $2.28 in 2024, and with a current quarterly payment of $0.61, the company seems on track for even greater growth in fiscal year 2025.
Starbucks benefits from strong leadership and brand recognition, suggesting that its stock holds solid value with the potential for ongoing dividends for years to come.
Philip Morris International: Growth and Dividends
Jeremy Bowman (Philip Morris International): Philip Morris represents a promising dividend stock that could appeal to investors over the next two decades.
This company originated from a split with Altria in 2007, with Altria focusing on the domestic market while PMI took its products overseas. This shift has proven beneficial, as smoking rates remain higher in regions such as Europe, Latin America, and Asia, where declines aren’t as steep as in the U.S.
PMI is innovating with next-generation products like IQOS and oral nicotine pouches, contributing to 40% of its revenue. In contrast to peers in the tobacco industry, Philip Morris has achieved notable growth, managing to sidestep the industry’s overall downward trend.
In the first quarter, organic revenue—discounting currency impacts—rose 10.2% to $9.3 billion. Notably, the revenue for smoking cessation products surged 20.4% to $3.9 billion, while tobacco sales edged up by 1.1% to $144.8 billion during the same period.
Adjusted earnings per share climbed 17% to $1.76, solidifying a company that currently yields around 3% in dividends, backed by a rich history of incremental increases in payouts tracing back to its Altria roots.
With innovative product offerings and a resilient tobacco business, Philip Morris is likely to remain a rewarding dividend stock for the foreseeable future.
