The stock market can be an excellent way to compound wealth over time. But the way an investor goes about growing their hard-earned savings can vary based on investment objectives, risk tolerance, interests, and myriad other factors.

Generating passive income from dividend stocks is a way to supplement income in retirement or simply help with financial planning. Dividends can also be useful because they provide income without having to sell stock. Although no dividend payment is truly risk-free, there are companies with track records for prioritizing dividend payments and building a capital return program centered around dividends.

Target (TGT 1.60%), PepsiCo (PEP 1.05%), and Kenvue (KVUE 0.66%) are three Dividend Kings, which are companies that have paid and raised their dividends for at least 50 consecutive years. Investing $1,000 into each stock should generate at least $100 in passive income per year, and likely more in the future as the dividend raise streaks continue.

Here’s why all three dividend stocks are worth buying now.

Target’s discretionary product mix is vulnerable to consumer spending cycles

Target is an excellent barometer for the retail industry and consumer spending patterns. The last few years have been challenging due to supply chain disruptions, inflation, and a pullback in spending on discretionary goods. But Target has finally turned the corner and is showing operating margin improvement and a return to growth. The company has made strides in reducing “shrink” — an industry term for the discrepancy between sales and inventory figures (in this case mostly caused by theft).

With a 2.9% dividend yield and a 15.9 price-to-earnings (P/E) ratio, Target stands out as a great value stock for investors to consider now.

The most reliable dividend stocks can raise their payouts year after year due to earnings growth. There’s reason to believe that Target has plenty of ways to accelerate growth going forward.

Target focuses more on discretionary goods than Walmart (WMT 0.62%), so it’s unsurprising that Target is underperforming Walmart year to date. But the extent of the underperformance is shocking — with Target stock up 7.8% on the year, compared to 52.1% for Walmart. Taking a page out of Walmart’s playbook could be a game-changer for Target.

Walmart has succeeded while so many other retailers have struggled because it has leaned into what it does best — providing value by offering the lowest costs, and the highest variety of staples and discretionary goods. It even offers services, like healthcare and auto care. Its growing home delivery service, Walmart+, competes directly with Amazon on value.

Target has been doing a good job expanding its Target Circle customer loyalty program through promotions and in-app rewards, but there’s even more room for improvement. Target has the tools to deliver even better results, which could make it an excellent long-term holding and a solid income stock for patient investors.

Pepsi stock has fallen far enough

The flagship Pepsi product line is a relatively small aspect of the larger PepsiCo conglomerate, which owns several brands from Gatorade to Mountain Dew, as well as Frito-Lay and Quaker Foods. But Pepsi’s sales volumes have been down in 2024 as people resist years of price hikes. In its third-quarter earnings release (published Oct. 8), Pepsi cut its full-year organic growth guidance from 4% (which was already not good) to “a low-single-digit increase.”

Pepsi is turning to promotions to attract customers. It may take time for Pepsi to return to meaningful volume growth if it continues to hold prices steady. However, investors who are willing to wait can buy the stock for an excellent value.

Pepsi is to Coca-Cola (KO 0.46%) as Target is to Walmart. Pepsi isn’t executing as well as Coke right now, but there’s no reason to believe that will stay the case over the long term. Pepsi has a phenomenal portfolio of brands. Management has acknowledged challenges and shown a willingness to adapt and be flexible.

As you can see in the following chart, Pepsi and Coke have nearly identical five-year median P/E ratios, but Coke is trading above that average while Pepsi is below it.

PEP PE Ratio data by YCharts.

At 3.2%, Pepsi also has a higher yield than Coke’s 2.8%. Despite its challenges, Pepsi continues to raise its dividend by a considerable amount. In July, it raised its dividend by 7%, marking its 52nd consecutive annual dividend increase.

Add it all up, and Pepsi stands out as an excellent safe stock to buy now.

Kenvue has the makings of an elite value stock

Kenvue is a unique Dividend King because it spun off from former parent company Johnson & Johnson in August 2023 — thereby inheriting J&J’s Dividend King status. Now, it’s up to the consumer health company to prove it can keep the streak intact and deliver for shareholders.

In July, Kenvue made a modest 2.5% dividend increase, marking its first dividend raise as an independent company. While that’s not impressive in its own right, Kenvue has a yield of 3.8% — which is considerably higher than many of its peers’ and higher than the consumer staples sector, which has a yield of 2.5%.

As the largest pure-play consumer health company by revenue with brands such as Band-Aid, Tylenol, Neutrogena, and more, Kenvue has the potential to be a reliable dividend-paying company that can do well no matter what the economy is doing. However, Kenvue has to prove that its brands have pricing power and can achieve strong enough organic growth to justify dividend raises.

Kenvue’s performance hasn’t been stellar. In the second quarter of 2024, it had organic growth of just 1.5%, compared to the same quarter last year. Its operating margin of 16.5% is middle of the pack compared to peers like Procter & Gamble, Church & Dwight, Kimberly Clark, and Clorox. However, Kenvue has a lower forward P/E ratio and a higher yield than these companies, making it a compelling value.

Power your passive income stream with three reliable investment opportunities

Weaker consumer spending has challenged Target, Pepsi, and Kenvue. However, all three Dividend Kings have attractive yields, inexpensive valuations, and strong business models that should help them endure further challenges.

Investors looking for quality companies at bargain-bin valuations should take a closer look at Target, Pepsi, and Kenvue.