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 2.5% annual dividend growth could generate $44,316 in yearly 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. This October, two stocks stand out for their attractive dividends and growth prospects: Lockheed Martin (NYSE: LMT) and Bristol Myers Squibb (NYSE: BMY).

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Lockheed Martin: A defense-industry titan

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, marking a 9% year-over-year increase.

At the heart of Lockheed's success lies 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 U.S. military in their new "Technology Refresh 3" configuration, effectively addressing previous 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 capitalization of $144 billion.

Lockheed Martin's investment appeal extends beyond its dividend profile. The company's wide economic moat, bolstered by multidecade defense contracts, provides stability in an often volatile market. This long-term visibility is precious 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. The drugmaker's 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 fellow drug developers and manufacturers. The company has also demonstrated strong dividend growth, with a five-year annualized rate of 5.9%.

The recent approval of Cobenfy for schizophrenia treatment marks a significant milestone for Bristol Myers Squibb. This first-in-class drug represents a new pharmacological approach to treat schizophrenia in decades. Cobenfy has the potential to generate multibillion-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 cancers. These established products provide a strong foundation for Bristol Myers Squibb's current financial performance. However, like all pharmaceutical companies, it faces the ongoing challenge of developing new drugs to offset eventual patent expirations.

The drugmaker's wide lineup of patent-protected drugs, entrenched salesforce, 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 prospects for substantial future growth. However, as with all pharmaceutical investments, success hinges on the outcomes of clinical trials and regulatory approvals.

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George Budwell has positions in Lockheed Martin. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.