For investors looking for a passive income, one place to focus one’s gaze is dividend stocks. These have been a popular method of building wealth for generations. And this hasn’t changed even today. For instance, Warren Buffet’s Berkshire Hathaway received about $4.9bn dividends from its equity investments in 2020 alone. 

While searching for dividend stocks, one area to look at is dividends kings and aristocrats. These are companies that have consistently increased their payouts over 50 years and 25 years, respectively. 

With that in mind, let’s take a look at two stocks that I’m considering for my passive income portfolio.

A dividend aristocrat for passive income

AbbVie Inc. (NYSE:ABBV) has consistently provided passive incomes for its shareholders through dividends for over 25 years. What’s more, the company has increased its payout every quarter during this time, making it a dividend aristocrat. Abbvie currently has a yield of 4.78%, potentially making it one of the best stocks to have in my passive income portfolio. And on top of that, the share price is up over 31% in the last year.

So what does it do? Abbvie is a research-based biopharmaceutical company that develops innovative therapies for complex and critical medical conditions. The firm focuses on four areas, immunology, oncology, virology and neuroscience. 

It was initially part of Abbott Laboratories until it was spun off in 2013. And has delivered strong performance, in my opinion, over the years. Interestingly, Abbvie has increased its revenue and earnings in the last four quarters, sharing the proceeds with its shareholders. 

But it’s far from a risk-free business. The health industry is a highly regulated and competitive sector. Suppose Abbvie can’t remain ahead of the curve or falls afoul of regulations. In that case, its status as a dividend aristocrat could become compromised.

A Dividend King for Passive Income

3M Co (NYSE:MMM) has attained dividend king status as the firm has generated passive income for its shareholders for over 50 years. This dividend stock develops, manufactures and markets many products globally. The company’s business is carried out through its Safety and Industrial, Transportation and Electronics, Health Care, and Consumer segments.

Although, 3M has managed to beat the market expectations in its financial results. The group’s stock is only up a little over 1% year-to-date and about 10% in the last 12 months. In any case, an investor looking for a source of passive income isn’t typically too concerned with capital gains but rather the ability to keep paying dividends. 

Dividends are usually the first thing that is sacrificed when companies go through hard times. Aside from that, profits paid out could have been used for projects within the company that will bring in more revenue. Suppose a business doesn’t retain enough of its earnings to reinvest into innovation. In that case, the payouts may stop flowing as a competitor begins to steal market share.

Finaly thoughts

Dividend stocks have been a great tool to generate passive income for many investors. And in my opinion, that continues to be true today. Abbvie and 3M undoubtedly have challenges to overcome. But personally, I think the risk is worth the reward. That’s why I’m considering both of these businesses for my portfolio.

Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned at the time of writing. Views expressed on the companies and assets mentioned in this article are those of the writer and, therefore, may differ from the opinions of analysts in The Money Cog Premium services.