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10 Best Passive Income Stocks in 2021

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·14 min read
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In this article, we will take a look at the 10 best passive income stocks in 2021. You can skip our comprehensive analysis of these stocks’ outlook in 2021 and go directly to the 5 Best Passive Income Stocks in 2021.

The COVID-19 pandemic triggered exceptional economic events that culminated in a global increase in unemployment rates. According to a report published in the Economic Policy Institute, the Bureau of Labor Statistics reported nearly 9.5 million job losses in the United States since February 2020. Many investors began to invest in dividend stocks that give decent, consistent yields for passive income. According to a study published by consulting firm Mckinsey, higher dividends would make shares further appealing to retirees seeking a steady income. In the same report, dividend-paying equities are also seen as more stable in times of poor returns and growing volatility.

The worldwide pandemic resulted in uncertainty for the economy's future, which is why we believe it is a good idea to start investing in established firms that have a reliable history of providing dividends. In a report by Janus Henderson Global Dividend Index, U.S. dividend stocks were extremely robust in the first quarter of 2021 jumping 2.6% year over year to a record of $503.1 billion in 2020.

Which Stocks Should You Buy for Passive Income?

Dividend stocks appeal to many investors because they provide a stable and reliable recurrent source of income. One notable stock that is popular among dividend investors is Exxon Mobil Corporation (NYSE:XOM). The petroleum company currently has a dividend yield of 5.76% and has the potential to raise its market value to as much as $2 trillion by 2040 given the completion of its $100 billion carbon capture plant. Shares of Exxon Mobil Corporation (NYSE:XOM) soared 24% over the last twelve months. The 52-week price range of Exxon Mobil Corporation (NYSE:XOM) is $31.11-64.02. On May 5, DZ Bank upgraded Exxon Mobil Corporation to Hold and announced a price target of $58.

Another dependable passive income stock is Ohio-based consumer products conglomerate The Procter & Gamble Company (NYSE:PG). The company has been paying dividends for 49 years and currently has a dividend yield of 2.62%. The Procter & Gamble Company (NYSE:PG) owns distinguished brands such as Tide detergent, Pampers diapers, and Pantene, among others. Shares of PG jumped 15% over the last twelve months. The 52-week price range of The Procter & Gamble Company (NYSE:PG) is $113.76-146.92. On April 21, Stephen Powers from Deutsche Bank maintained a Buy rating on Procter & Gamble Company (NYSE:PG) with a price target of $158.

Emerging Technology Industry

Most passive income stock investors pay attention to the emerging tech market because tech stocks offer massive share price gains as well. According to a survey from consulting firm Mckinsey, 40% of their respondents that observed revenue declines in recent years acknowledge that they were behind their peers in their use of digital technologies. One notable tech stock that pays dividends is Microsoft Corporation (NASDAQ:MSFT). The Washington-based tech giant currently offers a dividend yield of 0.91% and has a PE ratio of 33.70. Microsoft Corporation's (NASDAQ:MSFT)'s revenue in the first quarter of 2021 came in at $37.2 billion, up 12% from the first quarter of 2020. During the COVID-19 pandemic, the company's online meeting platform Microsoft Teams benefited from the work-from-home setup and achieved a new daily record of 2.7 billion meeting minutes in one day, up from 900 million minutes in two weeks. In April, the total number of meeting minutes in a single day surpassed 4.1 billion. Shares of MSFT surged 35% over the last twelve months.

Another well-known tech stock that pays dividends is Apple Inc. (NASDAQ:AAPL). The California-based technology company manufactures and markets electronics, computer software, and online services. From 2016-2020, Apple Inc. (NASDAQ:AAPL) acquired more AI companies than other tech giants including Accenture plc (NYSE:ACN), Alphabet Inc. (NASDAQ:GOOGL), Microsoft Corporation (NASDAQ:MSFT), and Facebook, Inc. (NASDAQ:FB). Apple Inc. (NASDAQ:AAPL) acquired a total of 25 AI companies in 5 years. AAPL shares currently trade for $125.06 and have a P/E of 28.11. The 52-week price range of Apple Inc. (NASDAQ:AAPL) is $80.19-145.09. Shares of AAPL jumped 55% over the last twelve months.

Just like Exxon Mobil Corporation (NYSE:XOM), The Procter & Gamble Company (NYSE:PG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc (NASDAQ:AAPL) the stocks we will mention in this article are some of the best passive income stocks in 2021.

During difficult times, passive income stocks may be a stable source of income. However, just like dividend investing, the hedge fund business is transforming. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th, 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

Best Passive Income Stocks in 2021
Best Passive Income Stocks in 2021

Photo by Daniel Thiele on Unsplash

With this context in mind, here is our list of the 10 best passive income stocks in 2021.

Best Passive Income Stocks in 2021

10. Altria Group, Inc. (NYSE:MO)

Number of Hedge Fund Holders: 38

We start our list of the top 10 best passive income stocks in 2021 with Altria Group, Inc. (NYSE:MO). Altria Group, Inc. operates as one of the largest producers of tobacco, cigarettes, and related products with brands such as Marlboro and John Middleton. The company increased its dividend consecutively for at least 50 years.

Altria Group, Inc. (NYSE:MO) posted its net income of $1.42 billion in the first quarter of 2021, down from $1.55 billion in the first quarter of 2020. MO shares currently trade for $49.36 and have a P/E ratio of 21.18. The current dividend yield is 6.99%. The 52-week price range of Altria Group, Inc. (NYSE:MO) is $35.83-52.59. Shares of MO jumped 22% over the last twelve months. On May 10, Morgan Stanley maintained an Overweight rating on Altria Group, Inc. and raised the price target to $52.

There were 38 hedge funds that reported owning stakes in Altria Group, Inc. (NYSE:MO) at the end of the first quarter, up from 37 hedge funds during the fourth quarter.

Oakmark Funds, an investment management firm, mentioned Altria Group, Inc. (NYSE:MO) in its Q1 2021 investor letter:

“We initiated a new position in Altria, which commands roughly 50% of the cigarette and smokeless tobacco market in the U.S. Both of these markets are duopolies that we believe have exhibited strong pricing power over time. While the shares trade at a low multiple of reported earnings, Altria also owns valuable stakes in other non-core businesses, including ~10% of AB InBev, 35% of Juul and 45% of Cronos. Excluding the values of these stakes and their respective earnings contribution, we were able to purchase shares of Altria for less than seven times our estimate of next year’s earnings. This compares to other consumer brands with less favorable earnings growth profiles that trade for three times Altria’s multiple. The company also has several promising reduced-risk products that may appeal to tobacco users, including On! and iQOS. We believe these products position the company well to help consumers slowly transition to a tobacco-free future. We expect management to return the vast majority of future earnings to shareholders given the company’s strong balance sheet, high free cash flow conversion and limited capital requirements.”

9. International Business Machine (NYSE:IBM)

Number of Hedge Fund Holders: 61

International Business Machine (NYSE:IBM) ranks 9th on the list of 10 best passive income stocks in 2021. The New York-based technology company offers its services to over 175 countries worldwide. Earlier this year, the company disclosed that it would acquire IT firm Taos Mountain LLC in a transaction expected to settle this quarter. Taos Mountain LLC has partnerships with major cloud providers, Amazon.com, Inc. (NASDAQ:AMZN)’s Amazon Web Services, Alphabet Inc. (NASDAQ:GOOGL)’s Google Cloud Platform, and Microsoft Corporation (NASDAQ:MSFT)’s Azure. The acquisition would enable IBM to boost ties with key public cloud service providers.

International Business Machine (NYSE:IBM) posted its revenue of $17.7 billion in the first quarter of 2021, up 1% from the prior year. IBM shares currently trade for $144.19 and have a P/E ratio of 24.12. The current dividend yield is 4.55%. The 52-week price range of International Business Machine (NYSE:IBM) is $105.92-148.74. Shares of IBM jumped 11% over the last twelve months. On April 20, Credit Suisse maintained Outperform rating on IBM and raised a price target to $165.

Just like Exxon Mobil Corporation (NYSE:XOM), The Procter & Gamble Company (NYSE:PG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc (NASDAQ:AAPL), International Business Machine (NYSE:IBM) is one of the best passive income stocks in 2021.

There were 41 hedge funds that reported owning stakes in International Business Machine (NYSE:IBM) at the end of the first quarter, down from 51 funds a quarter earlier. The total value of these stakes at the end of Q1 is $1.35 billion.

Distillate Capital mentioned International Business Machine (NYSE:IBM) in its Q2 2020 investor letter:

“AT&T and IBM exited the portfolio as they no longer met the quality criteria for inclusion with AT&T exceeding the debt limit and IBM falling out due to deteriorating long-term fundamental stability.”

8. 3M Company (NYSE:MMM)

Number of Hedge Fund Holders: 61

Ranking 8th on the 10 best passive income stocks in 2021 is 3M Company (NYSE:MMM). The Minnesota-based multinational conglomerate is a science-based company that creates innovative solutions to improve everyday living. 3M owns various companies such as Post-It, Scotch-Brite, Nexcare, and FUTURO. In 2019, the company made one of its biggest deals with the acquisition of medical device company Acelity, Inc. The acquisition solidifies 3M's position as a market leader in advanced wound care.

3M Company (NYSE:MMM) posted its GAAP net sales of $1.4 billion in the first quarter of 2021, up 9.8% from the same period of 2020. MMM shares currently trade for $203.20 and have a P/E ratio of 21.69. The current dividend yield is 2.91%. The 52-week price range of 3M Company (NYSE:MMM) is $148.80-208.95. Shares of MMM jumped 26% over the last twelve months. Just like Exxon Mobil Corporation (NYSE:XOM), The Procter & Gamble Company (NYSE:PG), Microsoft Corporation (NASDAQ:MSFT), and Apple Inc (NASDAQ:AAPL), 3M Company (NYSE:MMM) is one of the best passive income stocks in 2021.

There were 41 hedge funds that reported owning stakes in 3M Company (NYSE:MMM) at the end of the first quarter, down from 44 funds a quarter earlier. The total value of these stakes at the end of Q1 is $1.51 billion.

7. Chevron Corporation (NYSE:CVX)

Number of Hedge Fund Holders: 61

Ranking 7th in our list of 10 best passive income stocks in 2021 is multinational energy firm Chevron Corporation (NYSE:CVX). The oil and natural gas provider offers service stations worldwide. In the United States alone, the company has over 6,732 locations in 2,069 cities. In 2020, the company purchased independent oil and natural gas company Nobel Energy. The acquisition allowed the company to leverage its assets in the United States and Offshore assets in Equatorial Guinea, West Africa, and the eastern Mediterranean.

Chevron Corporation (NYSE:CVX) posted its operating revenue of $131 billion in the first quarter of 2021, up from $30 billion in the first quarter of 2020. CVX shares currently trade for $106.65 and have a P/E ratio of 16.6. The current dividend yield is 5.16%. The 52-week price range of Chevron Corporation (NYSE:CVX) is $65.16-113.11. Shares of CVX jumped 9% over the last twelve months.

There were 41 hedge funds that reported owning stakes in Chevron Corporation (NYSE:CVX) at the end of the first quarter, up from 50 funds a quarter earlier. The total value of these stakes at the end of Q1 is $4.86 billion

Nelson Capital Management mentioned Chevron Corporation (NYSE:CVX) in its Q1 2021 investor letter. Here is what the fund said:

“In the energy sector, we bought a position in Chevron (tkr: CVX). As interest rates have increased, we have witnessed a rotation out of growth and momentum stocks and into value stocks. We think this trend could continue, which would be advantageous for Chevron . Additionally, we anticipate an uptick in oil and gas demand as more people get vaccinated and air travel picks up . Higher oil prices coupled with increased demand should lead to better earnings results for Chevron, which will enable it to support (or perhaps grow) its Large 5% dividend.”

6. Emerson Electric Company (NYSE:EMR)

Number of Hedge Fund Holders: 61

Ranking 6th in our list of 10 best passive income stocks in 2021 is Emerson Electric Company (NYSE:EMR). The Missouri-based global technology, software, and engineering company was founded in 1890 and owns various firms such as AMS Suites, Alco Controls, Aperture, and American Governor Company. One of the most recent purchases of the company is intelligent platforms from General Electric Company (NYSE:GE). The acquisition will allow Emerson Electric Company to enhance its capabilities in machine control and discrete applications.

Emerson Electric Company (NYSE:EMR) posted its GAAP net sales of $4.2 billion in the first quarter of 2021, flat from the same period of 2020. EMR shares currently trade for $97.10 and have a P/E ratio of 27.39. The current dividend yield is 2.11%. The 52-week price range of Emerson Electric Company (NYSE:EMR) is $58.67-97.24. Shares of EMR jumped 54% over the last twelve months.

There were 45 hedge funds that reported owning stakes in Electric Company (NYSE:EMR) at the end of the first quarter, down from 46 funds a quarter earlier. The total value of these stakes at the end of Q1 is $796 million.

Fiduciary Management, Inc mentioned Electric Company (NYSE:EMR) in its Q1 2020 investor letter: Here is what the fund said:

“Emerson Electric offers a wide range of products and services primarily in the areas of Automation, HVAC & Refrigeration, and Construction. The company is comprised of Automation Solutions, Climate Technologies, and Tools & Home Products. Emerson has market-leading positions thanks to their domain knowledge, innovation (differentiated technology), and services & solutions capability to address complex challenges in critical markets. Automation Solutions enable customers to maximize production while reducing costs, and Climate Technologies improves energy efficiency, enhances comfort, and protects food quality. Although a cyclical company, nearly 40% of total sales come from the maintenance, repair and optimization portion of Automation Solutions (significant installed base). The replacement nature of Climate Technologies also helps this part of the business be less cyclical in a downturn. In addition to contingency plans in the current economic environment, the company’s balance sheet is positioned very conservatively (strong investment-grade credit) and they have plenty of liquidity. With a compelling valuation, we feel that Emerson is an attractive investment opportunity over our time horizon.”

To see the rest of the stocks in this list, please go to 5 Best Passive Income Stocks in 2021.

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Disclosure: None. 10 Best Passive Income Stocks in 2021 is originally published on Insider Monkey.