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3 Top Dividend Stocks to Buy Today for a Lifetime of Passive Income

Many investors like to own stocks that pay passive income to their shareholders. The amount of dividend income can be insignificant at first, but after a few decades of growth, those dividend payments start to add up, especially if you chose stocks of growing companies with a history of increasing their dividend.

Many of the world's strongest businesses pay regular dividends. Three Motley Fool contributors were asked to come up with their top pick for investors looking for a predictable stream of income from their investments. Here's why they selected Realty Income (NYSE: O), Home Depot (NYSE: HD), and Starbucks (NASDAQ: SBUX).

This company should pays a high yield, and monthly

Jennifer Saibil (Realty Income): Realty Income has an exclusive status that applies to a select group of stocks: It pays a monthly dividend. That's an unusual and valuable benefit for passive income investors and especially retirees.

But that's not the only feature that marks this real estate investment trust (REIT) as an ideal dividend stock. It's high-yielding, which is often the most celebrated aspect of a top dividend stock. It yields about 6% at the current price.

Realty Income also operates a business with stability and reliability. It owns more than 15,000 properties globally, and it has adequate funds to acquire new ones and stay in growth mode. It's well diversified, with 1,300 clients across 86 industries, and 82% concentrated in retail. Its top tenants are predominantly in essentials categories, with grocery stores and convenience stores in the top two spots.

Realty Income runs an efficient business that's managing well despite inflation and a dismal real estate market, and it maintains an occupancy level of around 98.6%.

Although it hasn't been immune to the impact of high interest rates, it's demonstrating strong performance, with $0.30 in earnings per share in the 2023 fourth quarter and $1.01 in adjusted funds from operations. Realty Income has paid 646 consecutive monthly dividends -- that's more than 53 years -- with 106 consecutive quarterly increases, and it's not in any danger of needing to stop that streak.

Fears about real estate and interest rates have soured investor confidence in real estate-focused stocks like Realty Income, and Realty Income stock is down 16% over the past year. But this sure looks like short-term, external pressure. That makes it an excellent time to buy and benefit from the low price and high yield, which move inversely. But more than the short-term value, you'll benefit from a lifetime of reliable and growing passive income.

A proven long-term winner

Jeremy Bowman (Home Depot): If I were going to make a list of lifetime dividend stocks to own, there's no question that Home Depot would be near the top of the list.

The home improvement retailer is one of the best-performing stocks in history, and has a number of competitive advantages that seem unlikely to change no matter what happens with technology or geopolitics.

It's part of a duopoly in home improvement retail with Lowe's, a massive, high-margin corner of the retail market that has barriers to entry from both e-commerce competitors like Amazon and smaller companies that don't have the scale or physical real estate to compete.

After saturating the home improvement retail market with stores, the company has pivoted to investing in its digital platform and returning capital to shareholders through share buybacks and dividends. Eyeing expansion, Home Depot also just acquired SRS Distribution, a leading distributor of building supplies serving the specialty trades. That move expanded its addressable market by $50 billion and should help it increase its competitive advantage in the pro market.

Home Depot also has a long history of rewarding investors with its dividend increases as it frequently raises its dividend by double digits annually. Currently, the company pays a dividend yield of 2.56%.

With interest rates high, the housing market has been sluggish, but that sets up an attractive buying opportunity in Home Depot as the stock is down roughly 20% from its peak during the pandemic. As interest rates come down, which is expected to happen later this year, the housing market should strengthen, and Home Depot's stock is likely to rebound.

A global beverage brand with a tasty yield

John Ballard (Starbucks): Starbucks has several qualities that make it an ideal stock to buy if you're primarily focused on earning passive income. Not only does Starbucks pay an above-average yield of more than 2.5% at current share prices, but it's also posting double-digit growth in earnings. Investors can potentially beat the market's average return given the company's growth opportunities.

Starbucks is a globally recognized brand. Management believes it can successfully reach 55,000 stores open worldwide by 2030. The international growth opportunity is a key component to management's goal of delivering profitable growth. The Wall Street consensus expects Starbucks to post annualized growth of 15% over the next several years.

The brand entered the year with momentum. Reward members were up 13% year over year in the December-ending quarter. It's reaching new members while spending from its most loyal customers reached a record high.

Over the long term, it's hard to go wrong investing in top consumer brands that generate repeat business with millions of customers. There are 34 million members in Starbucks' rewards program. It's ultimately why Starbucks can distribute around half of its free cash flow every year to shareholders in growing dividend payments.

Should you invest $1,000 in Realty Income right now?

Before you buy stock in Realty Income, consider this:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Amazon and Starbucks. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Home Depot, Realty Income, and Starbucks. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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