In This Article:
Key Points
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Dividend stocks can be a great way for investors to generate passive income.
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Dividends can also be more predictable than stock prices, which have fluctuated intensely this year.
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The key is to make sure a company can generate enough cash flow to cover its dividend, and ideally raise it.
The stock market has been incredibly volatile this year, registering a nearly 20% fall from February highs before bouncing back with a roughly 20% gain since President Donald Trump's sweeping tariff announcement in April. Two of the three major indexes entered bear market territory at one point.
Not everyone has the stomach for this kind of volatility as it can be incredibly stressful to see so much movement in such a short time period. Many investors prefer to focus on passive income by purchasing stocks with healthy, growing dividends. For those intrigued by this approach, here are the smartest dividend stocks in the broader benchmark S&P 500 index to buy with $3,000 right now.
Philip Morris International: A proven dividend payer with growing earnings
Tobacco company Philip Morris International (NYSE: PM) was spun off from its parent company, Altria Group (formerly Philip Morris Companies Inc.), and taken public in 2008. It was also around this time that the company made the decision to shift its focus from cigarettes to smoke-free products such as ZYN and iQOS.
The move away from cigarettes has only been gaining steam for the company recently with the stock up 149% over the last five years. It's even one of the top-performing names in the S&P 500 in 2025 with a 35% year-to-date gain (as of May 15), which is even more impressive considering how tough market conditions have been.
In the first quarter of the year, Philip Morris grew its earnings per share by 25%, while net revenue was up 6%. Management expects full-year adjusted EPS to surge over 50% on organic net revenue growth of 6% to 8%.
That's an encouraging outlook for income-focused investors. Philip Morris has been a strong dividend payer since going public in 2008, and it has increased its annual dividend every year at a roughly 7% compound annual rate. Dividends paid in the first quarter amounted to about 78% of earnings, and the company's free cash flow yield of 5.7% is comfortably above its 3.3% dividend yield.
Realty Income: The Monthly Dividend Company
Given that its slogan is "The Monthly Dividend Company," Realty Income (NYSE: O) is a stock that lives and dies by this monthly payout. As a real estate investment trust (REIT), the company must pay at least 90% of its taxable income in dividends to shareholders, which explains its superb 5.9% dividend yield as of this writing. Realty Income's core business is as a triple net lease operator, meaning it rents out properties to businesses, which are on the hook for other expenses like property tax, insurance, and maintenance.