3 Stocks to Buy for Decades of Passive Income While They're Down

Written by Anders Bylund for The Motley Fool->

Diageo's 4.2% yield is well-covered by free cash flow despite a tough year for premium spirits.

Walmart's free cash flow covers its dividend twice over, leaving room for decades of future increases.

PepsiCo makes most of its money from Frito-Lay snacks, not beverages.

The S&P 500 (SNPINDEX: ^GSPC) has delivered solid gains over the past year, but not every blue chip stock has participated in the rally. Many dividend-paying consumer giants are trading 30% or more below their 52-week highs, setting up smart entry points for income-focused investors.

Three stocks stand out as compelling opportunities right now. You probably interacted with at least one of these companies before breakfast this morning. Maybe you brushed your teeth after a glass of Tropicana orange juice, or grabbed a bag of Doritos for the road, or swung by Walmart for coffee creamer.

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These brands are so embedded in our daily lives that it's easy to forget they're publicly traded companies with stock prices that actually move -- and wealth-building dividend policies.

As of June 22, spirits titan Diageo (NYSE: DEO), snack-and-beverage leader PepsiCo (NASDAQ: PEP), and retail behemoth Walmart (NASDAQ: WMT) are all trading between 13% and 32% below their 52-week highs.

Each company owns a portfolio of brands that have generated cash for decades, and each continues to reward shareholders with growing dividend payments. With all three trading at significant discounts to recent highs, long-term investors have a chance to lock in above-average yields on some of the most durable businesses in the consumer sector.

If you've ever ordered a Johnnie Walker at an airport bar, toasted with Don Julio at a wedding, or grabbed a Guinness on St. Patrick's Day, you've contributed to Diageo's bottom line. The British spirits giant owns more than 200 brands spanning whiskey, tequila, vodka, gin, and beer. Its products sit behind practically every bar on Earth.

Consumers have been nursing their drinks lately. Net income fell 39% to $2.35 billion in fiscal year 2025, while free cash flow dropped from $4.6 billion to $2.7 billion. Wall Street noticed, and Diageo's stock has dropped 32% from last August's 52-week high.

Diageo doesn't boast the multidecade dividend growth streaks of American consumer staples giants, but the current yield is well covered by free cash flow. The falling stock price results in richer dividend yields, currently 4.2%.

At 12x forward earnings, the market is pricing in a Diageo hangover that won't last indefinitely. Diageo's 60% gross margin and business model built on aging inventory that appreciates over time (literally, in the case of premium whiskey) mean its cash generation should recover as consumer spending normalizes.

People have been raising glasses of Johnnie Walker and Guinness for generations; that's unlikely to change.

PepsiCo is named after a cola but makes most of its money from chips.

The Frito-Lay snack empire (Doritos, Lay's, Cheetos, Tostitos) delivers roughly 60% of the company's operating profit. The beverage side adds household names like Pepsi, Mountain Dew, Gatorade, and Tropicana. Together, these brands stock pantries and vending machines worldwide.

The stock is down 18% from its 52-week high, which seems harsh for a company that just extended its dividend growth streak to 54 consecutive years. PepsiCo is a Dividend King, a rare title reserved for companies with at least 50 years of unbroken annual payout boosts.

The business isn't exactly humming, as consumers around the world are pinching their snack-buying pennies. Still, PepsiCo keeps delivering reasonable growth even in a downturn. Revenue grew 2% last year. Free cash flow rose 7%. The 4.2% yield matches Diageo's and ranks among the highest PepsiCo has ever offered.

To be fair, the payout ratio is tight. PepsiCo sends nearly all its free cash flow to shareholders, leaving little room for more increases powered directly by cash flow. But PepsiCo has a long history of finding extra cash for its dividends in any economy. The 15.5x forward earnings suggest the market is pricing in stagnation. That skepticism looks overdone.

Walmart is the world's largest retailer, operating more than 10,500 stores across 19 countries. The company generated $713 billion in revenue last year. That's more than the gross domestic product (GDP) of wealthy countries such as Sweden, Belgium, and Argentina. Revenue grew 5%. Net income rose 13%. Free cash flow jumped 18%. The business is firing on all cylinders, driven by a surprising amount of e-commerce and technical know-how.

The 0.9% dividend yield won't turn heads, but the growth rate might. Walmart has raised its payout for 53 consecutive years, joining PepsiCo in the exclusive Dividend Kings club. Walmart's free cash flow doubles the dividend payout budget.

The stock is down 13% from its 52-week high. For a retailer that has thrived through recessions, the rise of e-commerce, and a global pandemic, that discount looks like an opportunity. For investors willing to trade a lower starting yield for decades of reliable growth, Walmart belongs in the conversation.

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Anders Bylund has positions in Walmart. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Diageo. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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