Like Passive Income? Then You'll Love These 3 Dividend Stocks.

Dividends can be an excellent way to generate passive income no matter what the stock market is doing. The best dividend-paying companies reward long-term investors with a blend of dividend income and capital gains. Still, there are some nuances to dividend investing worth considering.

Some folks prefer steady and ultra-reliable companies like Coca-Cola (NYSE: KO) or Air Products and Chemicals (NYSE: APD). Others may gravitate toward a higher risk, higher potential reward company like Diamondback Energy (NASDAQ: FANG) that features a variable dividend that can ebb and flow based on the performance of the business.

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

Image source: Getty Images.

Coke is facing a demand slowdown

Daniel Foelber (Coca-Cola): Despite an ongoing rally in the broader indexes, Coca-Cola stock has fallen by over 12% in the last month -- a sizable sell-off for an ultra-reliable blue chip company.

Coke has been falling for two main reasons. The first is that its latest earnings report wasn't great. And the second is that the consumer staples sector has been under pressure as several of the sector's leaders have been producing weak results.

Coke's latest report featured declining volumes, indicating demand is slowing and that Coke could be in for a difficult 2025, especially if consumer spending remains challenged. But Coke is still on track to deliver 10% non-GAAP (adjusted) organic revenue growth and 5% to 6% non-GAAP earnings growth in 2024 -- largely because the company continues to execute despite a challenging operating environment.

Coke has had several successful marketing campaigns in 2024, mainly around seasonal beverages. But it is also an expert in marketing and developing brands to make them staples of its beverage portfolio. Topo Chico is an excellent sample.

Coke bought sparkling water company Topo Chico for just $220 million in 2017. In its recent earnings call, it reported that year-to-date Topo Chico volumes have increased tenfold since pre-acquisition levels in 2016.

Topo Chico is a perfect example of Coke recognizing the potential of a high-quality regional brand and transforming that brand into an industry leader with exponential growth. Of course, Coke isn't perfect and arguably overpaid for brands like Bodyarmor and Costa Coffee. But overall, Coke does an excellent job of sticking to its core competency of non-alcoholic beverages and nurturing existing brands while also taking calculated risks on up-and-coming brands.

The sell-off in Coke is undoubtedly a buying opportunity for patient investors. Coke sports a 26.4 price-to-earnings ratio and a 22.4 forward P/E ratio. Its 10-year median P/E is 27.4 -- meaning Coke is trading at a discount to its historical average.

With a 3.1% yield and 62 consecutive years of dividend raises, Coke is a passive income powerhouse that investors can count on for reliable dividend income for decades to come.

Air Products delivers a dependable dividend that will help income investors sleep better

Scott Levine (Air Products & Chemicals): The best way to achieve it may be debated, but most will agree that portfolio diversification is essential to long-term investing success. While not every investment may provide passive income, including reliable dividend-paying stocks like Air Products -- along with its 2.3% forward-yielding dividend -- is a smart way to grow your personal wealth. For over 40 consecutive years, Air Products has raised its payout, demonstrating a steadfast commitment to rewarding shareholders.

From energy to food and beverage to biotech (the company's customers cover more than 30 industries, in fact), a wide variety of businesses rely on the industrial gases that Air Products supplies. This will certainly be alluring to those who are seeking conservative investments. For Air Products, the advantage of having customers from such a diverse range of industries helps mitigate the risk of any one industry experiencing a sharp downturn. And it further ensures that the company will generate steady cash flows that it can then return, in part, to shareholders in the form of dividends.

To put in perspective how attentive management is to maintaining the financial health of the company with regards to the dividend, consider the fact that over the past 10 years, Air Products has averaged a 62.3% payout ratio. Moreover, the company consistently generates robust cash from operations from which the company can source distributions.

Those concerned about the sources of future growth for the company may find their concerns assuaged after a look at the company's robust backlog: about $19.5 billion.

The Permian region remains the most productive oil-producing region in the U.S.

Lee Samaha (Diamondback Energy): The oil and gas company's management describes Diamondback as the "premier Permian pure-play." If it lives up to its self-billing and the Permian region can continue demonstrating that it is not only the largest oil-producing region in the U.S. (almost 5 times more production than the Bakken region), but also the fastest growing, then Diamondback has a big future.

Permian Region Total Oil Production data by YCharts

The company recently completed a merger with Permian-focused Endeavor Energy, which will increase its exposure to the region and create significant synergy generation opportunities. Management took advantage of its strong cash generation and relatively low valuations in the energy sector to acquire energy assets at a reasonable price.

Turning to the question of its dividends (Diamondback intends to return 50% of quarterly free cash flow to investors), the company pays an annual dividend of $3.60, equating to a dividend yield of about 2% at the current price, and the price of oil necessary to sustain is about $37 a barrel.

Still, the company also pays an opportunistic variable dividend. Given that the current price of oil is significantly above $37 and the addition of Endeavor will improve its cash flow profile in the attractive Permian region, investors can expect significantly more than $3.60 in annual dividends in the coming years.