Looking to Generate Passive Income? Consider These 3 Rock-Solid Dividend King Stocks

Key Points

• Emerson Electric has restructured its business to focus on long-term growth opportunities.

• Kenvue is a good choice for investors mainly focused on capital preservation and passive income.

• American States Water is a water utility stock that has paid dividends since its founding in 1931.

• 10 stocks we like better than Emerson Electric ›

Investing in the stock market over a long-term time horizon can be an excellent way to compound your savings. However, the path toward unlocking significant gains can be marked by numerous ups and downs.

Risk-averse investors or those nearing retirement may prefer dividend stocks over growth stocks, as they offer passive income regardless of the broader market's performance. But dividends aren't guaranteed. In fact, some companies will cut their dividends if profits fall, or irregularly raise their dividends even when the company is expanding.

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Dividend Kings are in a league of their own when it comes to dividend reliability. These are companies that have raised their dividends every year for at least 50 consecutive years. Given this impressive track record, Dividend Kings are a good starting point for investors seeking to enhance their passive income.

Here's why Emerson Electric (NYSE: EMR), Kenvue (NYSE: KVUE), and American States Water (NYSE: AWR) stand out as three particularly compelling Dividend Kings to buy now.

Image source: Getty Images.

Shifting to higher-margin automation markets is working for Emerson Electric

Lee Samaha (Emerson Electric): Dividend Kings, such as Emerson Electric, have a proud record of increasing dividends for over 55 years, for many reasons. One of them is a demonstrable ability to sustain and grow the earnings necessary to increase dividends over time. As such, when you buy a Dividend King, you are not just buying a dividend-paying stock; you are buying a stock with a proven track record of growth.

The interesting thing about Emerson Electric is that it's a significantly different company from what it was just a few years ago, but its growth prospects are arguably even stronger. The company has been restructured to focus on long-term growth opportunities arising from process and industrial automation, industrial software, and adjacent markets, such as automated test & measurement.

Management believes it has a game plan that will result in 4% to 7% revenue growth throughout the economic cycle, with an increase in margins (notably from selling more software-defined automation) driving double-digit earnings growth over time and free cash flow margins in the 15% to 18% range.

Those are impressive numbers, and ones that support significant dividend growth in the coming years. Given that Emerson's three-month trailing orders are currently growing in the mid-single-digit range in an economy plagued by uncertainty, its longer-term growth aspirations look achievable, and this Dividend King's dividend looks set to grow for a long time yet.

A high-yielding stock at a reasonable value

Daniel Foelber (Kenvue): Kenvue spun off from Johnson & Johnson in 2023, taking with it well-known consumer health and hygiene brands ranging from Neutrogena to Aveeno, Tylenol, Listerine, Band-Aid, and more. With such a dominant slate of brands and a smaller, more focused company, Kenvue seemed like a coiled spring for steady growth.

However, that has not been the case. As you can see in the following chart, Kenvue's stock price is down since the spinoff despite the S&P 500 rocketing higher during that period. Revenue and margin growth have been nonexistent as Kenvue has struggled to offset inflation pressures with price hikes and higher sales volume.

KVUE data by YCharts

Despite the poor results, Kenvue does have some noteworthy qualities that could be attractive to income investors. The company is technically a Dividend King -- having inherited Johnson & Johnson's 61-year streak and then hiking its payout by 2.5% last July. Kenvue is likely to modestly boost its dividend later this month to keep the streak alive.

The stock has a high yield at 3.9%, which is significantly higher than well-known Dividend Kings like Coca-Cola or Procter & Gamble. And finally, Kenvue sports a reasonable valuation -- with a forward price-to-earnings ratio of 18.4.

Kenvue isn't the kind of company that will "wow" investors with a breakneck growth rate and innovation. However, it has a strong portfolio of brands that should support modest dividend growth over time.

Put utility stock American States Water to work and watch a tide of dividends flow in

Scott Levine (American States Water): Water utility stocks like American States Water are rarely the source of sizzling headlines, but sometimes boring can be beautiful. For those looking to fortify their portfolios with a solid -- albeit unexciting -- dividend stock, American States Water and its forward-yielding 2.4% dividend is an excellent option. It has paid dividends since its founding in 1931, and for the past seven decades, it has consistently hiked its dividend -- and that streak isn't likely to end anytime soon.

Serving over 264,000 regulated water utility customers in California, American States Water also provides water service to 12 military bases under 50-year contracts. Between these two businesses, the company generates steady revenue and highly predictable profits. With the resulting insight into future cash flows, management is consequently able to responsibly budget for future capital expenditures, such as infrastructure upgrades and dividends.

AWR Total Dividends Paid (Annual) data by YCharts.

Over the past 10 years, American States Water has consistently generated ample operational cash flow to source its dividend payments. And that's not the only indication that the dividend is secure. The company has averaged a conservative 56.4% payout ratio from 2015 through 2024.

With a 70-year streak of returning an increasing amount of capital to shareholders and a resilient business model, American States Water should shine brightly on the radars of investors looking for stalwart dividend stocks.

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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Emerson Electric and Kenvue. The Motley Fool recommends Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.