In this article, we discuss the 5 best passive income stocks in 2021. If you want to read our detailed analysis of these stocks, go directly to the 10 Best Passive Income Stocks in 2021.
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5. Lockheed Martin Corporation (NYSE:LMT)
Number of Hedge Fund Holders: 50
Ranking 5th in our list of the 10 best passive income stocks in 2021 is Lockheed Martin Corporation (NYSE:LMT). The Maryland-based global security and aerospace company produces advanced technology systems including aircraft, space launchers, satellites, and defense systems. The company’s dividend has been increased every year for the past 18 years. In 2020, Lockheed Martin Corporation agreed to buy Aerojet Rocketdyne Holdings, Inc. (NYSE: AJRD) in a binding agreement that is expected to close in the second half of 2021. The acquisition will allow the company to enhance the domestic defense industrial base while lowering costs for our customers and the American taxpayer.
Lockheed Martin Corporation (NYSE:LMT) posted its net sales of $16.3 billion in the first quarter of 2021, up from $15.7 billion in the same period of 2020. LMT shares currently trade for $385 and have a P/E of 15.54. The current dividend yield is 2.72%. The 52-week price range of Lockheed Martin Corporation (NYSE:LMT) is $319.81-417.62. Shares of LMT jumped 12% in the last three months.
There were 50 hedge funds that reported owning stakes in Lockheed Martin Corporation (NYSE:LMT) at the end of the first quarter, down from 53 funds a quarter earlier. The total value of these stakes at the end of Q1 is $2.29 billion.
RiverPark Advisors, LLC mentioned Lockheed Martin Corporation (NYSE:LMT) in its Q4 2020 investor letter. Here is what the fund said:
“Despite better-than-expected third quarter results, LMT shares were weak for the quarter as defense spending is expected to be flat for the coming year. With a record $150 billion backlog and almost 30% of its revenue coming from building F-35 aircraft with deliveries forecast to reach 180 per year in 4-5 years (3Q’s revenue upside was from the F-35), we believe LMT should grow at a higher rate than overall defense budget growth and Street expectations over the next several years. Further, strategic acquisitions (LMT acquired AJRD for $4 billion in late December), debt pay down, a 3% dividend yield, and continued share buybacks from $6 billion per year of free cash flow should lead to even greater shareholder returns.”
4. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 63
Texas-based telecommunications company AT&T Inc. (NYSE:T) ranks 4th in our list of 10 best passive income stocks in 2021. The company was founded in 1983 and has over 182.56 million active subscribers. AT&T Inc. has a 30-year history of increasing dividends. However, early this month, the company announced plans of resizing its dividends following the completion of the WarnerMedia spin-off. Despite the dividend cut, the company believes AT&T Inc. will continue to pay out a “really high dividend” with a yield in the 95th percentile among dividend payers.
AT&T Inc. (NYSE:T) posted its revenue of $8.5 billion in the first quarter of 2021, up 9.8% from the same period of 2020. T shares currently trade for $29.61 and have a P/E of 9.16. The current dividend yield is 7.07%. The 52-week price range of AT&T Inc. (NYSE:T) is $26.35-33.88. Shares of T jumped 3% in the last three months.
There were 63 hedge funds that reported owning stakes in AT&T Inc. (NYSE:T) at the end of the first quarter, up from 58 funds a quarter earlier. The total value of these stakes at the end of Q1 is $2.70 billion.
Nelson Capital Management mentioned AT&T Inc. (NYSE:T) in its Q1 2021 investor letter. Here is what the fund said:
“Nelson Capital stayed busy i n t he first quarter, making several adjustments within our core portfolio. In the communication services sector, we sold AT&T (tkr: T). Over the years, AT&T has made several poor acquisitions, especially in the content realm, leaving the company saddled with debt and unable to change directions.”
3. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 65
Ranking 3rd in our list of 10 best passive income stocks in 2021 is Pfizer Inc. (NYSE:PFE). The multinational pharmaceutical firm was founded in 1849 and offers various healthcare products including Pfizer-BioNTech COVID-19 Vaccine. The vaccine along with vaccines produced by notable healthcare companies such as Johnson & Johnson (NYSE:JNJ) and Moderna, Inc. (NASDAQ:MRNA) have all proven its effectiveness in fighting the spread of the COVID-19 virus. However, the Pfizer vaccine was shown to be 95% effective in preventing symptomatic Covid infection.
Pfizer Inc. (NYSE:PFE) posted its revenue of $14.6 billion in the first quarter of 2021, up from the expected revenue of $13.51 billion. The overall revenue boost was mainly because of the rise in COVID-19 vaccine sales which accounted for $3.5 billion of the global revenue. PFE shares currently trade for $38.79 and have a P/E of 19.65. The current dividend yield is 4.05%. The 52-week price range of Pfizer Inc. (NYSE:PFE) is $29.99-43.08. Shares of PFE jumped 13% over the last twelve months.
There were 65 hedge funds that reported owning stakes in Pfizer Inc. (NYSE:PFE) at the end of the first quarter, up from 63 funds a quarter earlier. The total value of these stakes at the end of Q1 is $2.04 billion.
Diamond Hill Capital mentioned Pfizer Inc. (NYSE:PFE) in its Q1 2021 investor letter. Here is what the fund said:
“Over the past year, pharmaceutical company Pfizer, Inc. has reshaped its business dramatically, divesting non-core segments like its consumer products and branded generics businesses to refocus its efforts on becoming a pure play pharmaceutical company once again. The stock has traded down with the general market decline, but given the stability of the business and improved margin profile going forward, we initiated a position.”
2. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 67
Ranking 2nd in our list of 10 best passive income stocks in 2021 is McDonald’s Corporation (NYSE:MCD). The Illinois-based American fast food company was founded in 1955 and has over 39,198 restaurants worldwide. In 2019, the company acquired AI firm Apprente. Apprente uses AI technology to automate voice-based ordering in various languages which will enable Mcdonald’s to enhance its voice-activated drive-thru, as well as mobile and kiosk ordering.
McDonald’s Corporation (NYSE:MCD) posted its revenue of $5.12 billion in the first quarter of 2021, up from the expected revenue of $5.03 billion. MCD shares currently trade for $233 and have a P/E of 33.93. The current dividend yield is 2.21%. The 52-week price range of McDonald’s Corporation (NYSE:MCD) is $178.88-238.18. Shares of MCD jumped 20% over the last twelve months.
There were 67 hedge funds that reported owning stakes in McDonald’s Corporation (NYSE:MCD) at the end of the first quarter, up from 62 funds a quarter earlier. The total value of these stakes at the end of Q1 is $3.78 billion.
Horizon Kinetics LLC mentioned McDonald’s Corporation (NYSE:MCD) in its Q1 2021 investor letter. Here is what the fund said:
“We were asked about the attractiveness of some well-established, low-price-point restaurant chain, like McDonald’s. It would seem to be a high-quality name for maybe a consumer-income-constrained world. The share price had dropped in lock step with the S&P 500. The problem is that inflation isn’t evenly applied. If it were, if all prices and salaries and rents rose by the same percentage, it’s not a problem. But what if McDonald’s input costs, like wages and rents, as well as the prices it charges its customers, are all rising at a 6% annual rate, but suddenly the cost of beef rises by 12%; and the cost of corn syrup for soda? Food and packaging are roughly 30% of a fast food restaurant’s costs. That could seriously diminish profit margins.
A better business model for such an environment might be a food processor like Archer Daniels Midland. The country can’t exist without an ADM. It would be difficult to have a balanced dinner without some ADM product on your plate, whether it’s the vegetable oil in the salad dressing, the protein meal that fed the chicken, the wheat flour and yeast in your bread, the citric acid in the spice rub, or the probiotics in your health drink. The company has its own trucks, railroad cars, river barges and ocean-going vessels.
A negative of the business is that, as an intermediary, ADM has very low margins: a 6% gross margin and 2% net margin. A positive, though, is that it is a very high-quality business that has staying power: it has a credit quality rating of A and it hasn’t missed a dividend payment in over 80 years. The other positive is that it can benefit mightily from just a bit of inflation, because even if it can expand its net margin by only, say 2% points, that’s a 100% increase in earnings. The stock can do exceedingly well under those circumstances, particularly if it can put 2 good consecutive years together. In 1992, its gross margin was about twice as high as today and the net margin 2 ½ x higher. So, in principle, ADM could be a candidate for us. The challenge, though, is that it is such a diverse business that there is hardly a year when it doesn’t have some sort of problem that offsets the success of the other parts of its business, say root rot in the soybean crop. So that requires some thought. Maybe it’s the right company but not the right time. Maybe it is the right time.
But it gives you an idea of how we’re thinking about business models vis-à-vis an inflationary environment.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 111
Topping the 10 best passive income stocks in 2021 is JPMorgan Chase & Co. (NYSE:JPM). The New York-based financial services holding company has over 32,800 customers. One of the biggest acquisitions the company made was medical technology firm InstaMed in an over $500 million deal. The 2019 acquisition allowed JPMorgan to push farther into the healthcare business in the United States.
JPMorgan Chase & Co. (NYSE:JPM)’s net income came in at $8.1 billion in the first quarter of 2021, up from $4.0 billion in the first quarter of 2020. JPM shares currently trade for $166 and have a P/E of 13.17. The current dividend yield is 2.17%. The 52-week price range of JPMorgan Chase & Co. (NYSE:JPM) is $90.78-167.44. Shares of JPM jumped 59% over the last twelve months.
There were 111 hedge funds that reported owning stakes in JPMorgan Chase & Co. (NYSE:JPM) at the end of the first quarter, down from 112 funds a quarter earlier. The total value of these stakes at the end of Q1 is $5.25 billion.
Bretton Fund mentioned JPMorgan Chase & Co. (NYSE:JPM) in its Q1 2021 investor letter. Here is what the fund said:
“After a strong performance in 2019, we wrote this about our bank stocks in last year’s report: “There will be another recession sooner than later, and our banks will see larger loans losses, but we think this is more than priced into the stock, and our banks are well reserved for that eventuality.” Little did we know “sooner” really meant “a few weeks from now.” Despite the economic shock, the banks still have huge capital cushions that can absorb large loan losses. Our remaining bank investments, JPMorgan and Bank of America, increased their reserves significantly at the beginning of the Covid-19 crisis in anticipation of imminent loan defaults, but with the government stimulus and perhaps a more resilient economy than many would have guessed, actual loan losses are up only slightly. They might happen later in 2021, but with an additional stimulus package and the vaccine rolling out, the large-scale losses may not be as bad as most people predicted. The bigger drag on the banks’ earnings power is lower rates, which in our opinion will persist for a long time. Despite this drag, we estimate both JPMorgan and Bank of America will continue to grow revenue and earnings over the next few years, while we believe their stocks remain bargains in a somewhat expensive market. JPMorgan’s earnings per share declined 17% last year, and its stock returned -5.5%. Bank of America’s earnings, which are more sensitive to interest rates, were down 32%, and its stock returned -11.6%.”
You can also take a peek at 10 Blue Chip Dividend Stocks Hedge Funds Are Buying and 14 Best European Dividend Stocks To Buy.
