The Motley Foolยท2025-09-26 09:45Core Viewpoint - Dividend stocks provide high yields and growth catalysts that can support payouts for decades, making them attractive for passive income investors [1][2]. Group 1: Dividend Stocks Overview - Building passive income through dividend-paying stocks allows investors to secure financial freedom by generating regular cash distributions [2]. - Dividend stocks combine income with potential long-term capital appreciation, offering protection against inflation through rising distributions [3]. Group 2: Company-Specific Insights - Philip Morris International offers a 3.6% yield with an 80% payout ratio, supported by its transformation towards smoke-free products, which generated 39% of 2024 revenue [6][7]. - Pfizer provides a 7.14% yield at 7.7 times forward earnings, with projected revenue of $61 billion to $64 billion in 2025, driven by various growth products and an acquisition of Metsera for up to $7.3 billion [8][9]. Group 3: Investment Considerations - Philip Morris trades at a discount with a forward earnings ratio of 19.4 compared to 22 for the S&P 500, while maintaining a credible path to smoke-free growth [7]. - Pfizer's high payout ratio of 90% presents execution risks, but management's commitment to dividends and lower expense guidance suggest a compelling risk-reward balance [9][11]. Group 4: Passive Income Strategy - Both Philip Morris and Pfizer offer different paths to passive income, with a combined yield of approximately 5.4%, significantly higher than the S&P 500 average [10]. - Sustainable yields backed by strong business fundamentals are crucial for passive income investing, with both companies demonstrating potential despite facing regulatory challenges [11].