It can be comforting to hold stocks of strong companies that regularly pay passive income to shareholders. By selecting the right dividend stocks, an investor can easily put together a portfolio that yields around 3% every year in dividend income. If the companies you select grow their earnings, they’ll also boost the dividend payment and the yield on your original investment.

To get you started, three Motley Fool contributors were asked to come up with their best stock picks that can pay you passive income for the rest of your life. Here’s why they selected Coca-Cola (NYSE: KO), Philip Morris International (NYSE: PM), and Home Depot (NYSE: HD).

Invest in Warren Buffett’s favorite

John Ballard (Coca-Cola): Investing in companies with strong competitive advantages can protect and grow your money over decades. Coca-Cola’s global brand power and high annual sales volume would certainly fit the bill. They’re why Warren Buffett has held a large position in the stock for over 30 years.

People consume 2.2 billion servings of Coke products every day or about 800 billion servings annually. This includes the 200-plus brands it owns, including Fanta, Sprite, Minute Maid juices, Dasani water, Costa Coffee, Fuze Tea, Powerade, and Simply. A large product portfolio provides many avenues to drive sales.

All those servings generated $10 billion in profit on $46 billion of revenue over the last four quarters. The company paid out three-quarters of its earnings in dividends over the last year, or $0.485 per share, bringing the forward dividend yield to 2.71%.

Coca-Cola has increased its dividend for 62 consecutive years and increased the quarterly payment by 5% earlier this year. Management continues to wisely allocate capital and remove costs from operations to boost margins, all of which go toward supporting growing earnings and dividends to shareholders.

Investors have rewarded the company for its ability to continue growing earnings at double-digit rates despite a challenging retail environment. Wall Street analysts expect the company’s adjusted earnings to be up 14% this year. That’s why the stock is hitting new highs, but its above-average dividend yield suggests the shares are still reasonably priced for new investors to start a position.

A transformative tobacco stock

Jeremy Bowman (Philip Morris International): PMI might seem like an odd recommendation for a dividend stock to buy and hold forever. After all, smoking rates have been declining for generations. But that hasn’t stopped PMI, which operates in international markets in which smoking rates are higher than in the U.S., from continuing to grow and deliver strong results.

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In fact, this is much more than a traditional tobacco company today. Roughly 40% of its revenue comes from next-gen, smoke-free products like its iQOS heat-not-burn devices and Zyn chewable nicotine pouches, which it gained through its acquisition of Swedish Match in 2023.

Now, Philip Morris International is playing offense. For instance:

• The company recently acquired the rights to sell iQOS in the U.S. from Altria and is ramping up plans for a launch of the product later this year.

• Similarly, the company also just announced that it was investing $232 million to expand a Zyn production plant in Kentucky.

• Last month, it said it would spend $600 million to build a Zyn facility in Colorado.

PMI’s recent numbers also show the company is delivering strong growth for a dividend stock. Organic revenue was up 9.6% year over year in the second quarter to $9.5 billion. Revenue growth from its smoke-free business was even stronger at 18.3%, while combustibles grew by a respectable 4.8%. Adjusted earnings per share also jumped 11% to $1.77.

As a dividend payer, PMI currently offers a yield of 4.3%, which should keep investors happy, especially considering the strong growth in the business. Considering its mix of growth and yield, Philip Morris International deserves a place in any dividend investor’s portfolio.

A market-beating stock with an excellent dividend

Jennifer Saibil (Home Depot): Home Depot is a market-beating stock that also pays a growing dividend with an attractive yield. In other words, it’s an excellent dividend stock.

This isn’t the best time for Home Depot. Customers are switching down to cheaper products all over retail, and Home Depot’s larger and more expensive products aren’t essentials that customers are going to binge on right now. The company is being further pressured by a real estate industry that’s still underwater.

But Home Depot is the largest home improvement chain in the world, and it’s become the leader in the industry by offering a great experience for shoppers with an omnichannel focus. Comparable sales were down 3.3% from last year in the 2024 fiscal second quarter (ended July 28), but total sales were up a little bit (0.6%).

Management isn’t expecting any magic right now. It’s doing what it does best: giving customers what they need and waiting out the inflationary environment while strengthening the business’s position. It’s still expecting a decline in comparable sales and a lower operating margin for the full year.

In the meantime, it pays a top dividend. Home Depot has paid a dividend for close to 40 years, and it has increased the payout by more than 4,500% since it started. The dividend has added tremendous value to the stock price. Even without the dividend, shareholders would have beaten the market over the past 10 years, but with the dividend, the gain moves from 306% to 412%.

Home Depot stock is trailing the market this year, but it’s up 8%. Its business should easily rebound under better macroeconomic conditions, and it should get back to beating the market over the long term. It’s highly profitable, with $4.60 in earnings per share (EPS) in the second quarter and $4.7 billion in free cash flow, plenty to fund the dividend.

At the current price, Home Depot’s dividend yields 2.3%. The company has paid it under all sorts of circumstances, and shareholders can benefit from market-beating potential and passive income.

Should you invest $1,000 in Coca-Cola right now?

Before you buy stock in Coca-Cola, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Coca-Cola wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

3 Dividend Stocks to Buy Now and Hold Forever was originally published by The Motley Fool