Worried About a Stock Market Sell-Off? Consider Coca-Cola, Pepsi, and These 3 Safe Dividend Kings for Decades of Passive Income.

The broader stock market continues to roar higher, with the S&P 500 index now up 46% since the start of 2023. But some investors may be looking to take their foot off the gas and put new capital to work in safe stocks.

Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP), and Kenvue (NYSE:KVUE) are three consumer staples companies that pay sizable dividends. Illinois Tool Works (NYSE:ITW) and Target (NYSE:TGT) can be more cyclical but have a track record of paying and raising their dividends even during economic downturns.

All five companies have raised their dividends every year for more than 50 consecutive years -- putting them in the elite Dividend King category. Here's why all five dividend stocks could be worth buying now.

Image source: Getty Images.

Sit back and let Coke and Pepsi work for you

Coke and Pepsi are two beverage behemoths that have international exposure. But they do have some noteworthy differences.

Coke is a more concentrated company -- focusing mostly on soft drinks, juice, and tea. In recent years, it has expanded to energy drinks and coffee -- namely due to the acquisition of Costa Coffee in 2019 and energy drink company Bodyarmor -- which occurred in two stages and was fully executed in 2021.

The majority of Coke's revenue and operating income is from outside North America, whereas Pepsi-owned Frito-Lay and Quaker Foods have massive footholds in North America. In the recent quarter, Frito-Lay and Quaker Foods combined for $6.44 billion in sales -- nearly as much as PepsiCo Beverages North America.

Pepsi handles its own distribution, whereas Coke has a network of bottling partners. Pepsi has greater control over its operations, which is a key reason why it partnered with Celsius to help with the energy drink's distribution. But Coke is a leaner, higher-margin company.

At the start of the year, both companies had around the same dividend yields, but Coke stock has surged more than 20% year to date while Pepsi is up less than 4%, which has pushed Coke's dividend yield down to 2.8% compared to 3.1% for Pepsi. Coke is also the more expensive stock with a higher price-to-earnings (P/E) ratio.

Pepsi is the better pick if you're looking for diversification, value, and a higher yield. However, Coke's business model and portfolio of beverage brands is arguably stronger, which could make it a good choice even though the stock is at an all-time high. Regardless of personal preference, both stocks are worth considering now.

A stodgy yet effective consumer staples stock

In August 2023, Kenvue spun off from former parent company Johnson & Johnson (NYSE:JNJ). The spinoff allowed J&J to be a potentially higher-growth company by specializing in medical devices, diagnostics, and pharmaceuticals -- leaving the "boring" consumer health brands like Neutrogena, Listerine, Benadryl, Tylenol, Aveeno, and Band-Aid to Kenvue. But sometimes, boring is better, especially for investors focused on capital preservation and generating reliable passive income.

Structural changes can make it harder to analyze post-split companies. But so far, Kenvue has emerged as an excellent dividend stock. Kenvue inherited J&J's Dividend King streak. It made its first dividend raise as an independent company in late July, boosting the payout to $0.205 per share per quarter.

Results have been solid, with margins on the rise. Management is focused on accelerating growth by investing 20% more in its brands than last year. Kenvue has succeeded with new innovative marketing strategies, particularly with Neutrogena on TikTok. All told, Kenvue and its 3.8% dividend yield are worth a closer look for passive income-oriented investors.

Two industry leaders with affordable and growing payouts

Industrial conglomerate Illinois Tool Works -- commonly known as ITW -- and Target may not immediately stand out as safe dividend stocks due to the cyclical nature of their end markets. But both Dividend Kings have managed to grow their payouts in different ways.

ITW's approach is all about diversification and high margins. Its end markets span several industrial, commercial, and consumer product categories -- from food equipment to automotive products, welding, and more. All seven of ITW's segments are well-run, efficient business units that develop the best ideas through the best brands. This priority on quality over quantity has led to higher operating margins at the expense of sluggish sales growth -- which is undoubtedly a trade-off worth considering before buying the stock. But the low growth hasn't stopped ITW from generating enough cash to fund its massive stock buyback and dividend programs.

Although ITW may not seem like the safest stock at first glance, its structure and regimented growth strategy allow it to be just as reliable of a dividend payer as Coke and Pepsi. ITW has a payout ratio of just 54% -- which is excellent.

Target has been on a roller coaster the last few years -- seeing a surge in demand during the COVID-19 pandemic, followed by bloated inventory and inflationary pressures that crippled margins. But Target is finally turning the corner and raised its full-year guidance as same-store sales turned positive. Target is vulnerable to consumer spending trends and economic cycles. However, it deserves credit for overcoming the threat of Amazon and other e-commerce companies by renovating its in-store experience and investing in its e-commerce strategy and curbside pickup offerings.

Even amid its decline in earnings over the last few years, Target's payout ratio remained at reasonable levels, showcasing the affordability of its dividend expense even when the business faces a challenging period. The payout ratio has fallen to a rock-solid 45% -- and the stock yields 2.8% after its 53rd consecutive dividend raise in June.

Target has what it takes to continue raising its dividend, even during economic slowdowns. Like ITW, Target is an excellent example of a safe stock not because of its recession resistance, but because of its earnings power and dividend affordability.

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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. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Celsius, Kenvue, and Target. The Motley Fool recommends Illinois Tool Works and Johnson & Johnson and recommends the following options: long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.