2 passive income stocks to load up on in October

Dividend investing can create substantial passive income over time. A conservative example illustrates this potential: Investing $10,000 annually for 40 years in a stock yielding 3.1% with annual dividend growth of 2.5% could generate $44,316 in annual dividend income. This strategy would also build a portfolio worth over $1.4 million.

Selecting the right dividend stocks is crucial. Investors should focus on companies with sustainable payouts, management committed to shareholder returns and businesses poised for long-term profitability. In October, two stocks stand out for their attractive dividends and growth prospects: Lockheed Martin (LMT -0.44%) and Bristol Myers Squibb (BMY 1.63%).

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Lockheed Martin: a titan of the defense industry

Lockheed Martin, the world’s largest defense contractor, continues to demonstrate its dominance in the aerospace and defense sector. The company’s Q2 2024 results underscore its robust performance, with net sales reaching $18.1 billion, up 9% year-over-year.

At the heart of Lockheed’s success is the F-35 fighter jet program, which remains a key driver of the company’s growth. Lockheed has successfully resumed deliveries of F-35s to the US military in their new “Technology Refresh 3” configuration, effectively addressing earlier concerns about delays.

For income-focused investors, Lockheed Martin presents an attractive proposition. The company currently offers a dividend yield of 2.08%, supported by a conservative payout ratio of 45.2%. What sets Lockheed apart is its dividend growth rate of 5.58% annually over the past five years — a remarkably high figure for a company with a market cap of $144 billion.

Lockheed Martin’s investment appeal extends beyond its dividend profile. The company’s broad economic base, backed by decades of defense contracts, provides stability in an often volatile market. This long-term visibility is valuable for passive income investors looking for reliable cash flow.

Bristol Myers Squibb: A Pharmaceutical Innovator

Bristol Myers Squibb is a major player in the pharmaceutical industry, focusing on innovative treatments in oncology, hematology, immunology and cardiovascular disease. Drug manufacturers’ commitment to research and development has led to a robust pipeline of potential new drugs.

Bristol Myers Squibb currently offers a dividend yield of 4.54%, supported by a payout ratio of 59.8%. This payout ratio is considerably lower than the peer group average of 141%, indicating a more sustainable dividend than many of its drug developer and maker peers. The company has also demonstrated strong dividend growth, with a five-year annualized rate of 5.9%.

The recent approval of Cobenfy for the treatment of schizophrenia marks a significant milestone for Bristol Myers Squibb. This first-in-class drug represents a new pharmacological approach to treating schizophrenia in decades. Cobenfy has the potential to generate billion-dollar peak sales in neurology, a key focus for Bristol Myers Squibb.

The company’s portfolio includes several blockbuster drugs, such as Eliquis for stroke prevention and Opdivo for various types of cancer. These established products provide a solid foundation for Bristol Myers Squibb’s current financial performance. However, like all pharmaceutical companies, they face the ongoing challenge of developing new drugs to offset potential patent expirations.

The drugmaker’s wide range of patent-protected drugs, entrenched sales force and economies of scale contribute to its wide economic moat. Moreover, its focus on areas with strong pricing power — such as oncology and rare diseases — helps offset potential pricing pressures in the pharmaceutical industry.

Bristol Myers Squibb presents an interesting option for investors seeking exposure to the pharmaceutical industry with a focus on income. The company’s pipeline of potential experimental drugs offers substantial future growth prospects. However, as with all pharmaceutical investments, success depends on the results of clinical trials and regulatory approvals.