2 Top Passive Income Stocks to Buy Now

Key Points

• Philip Morris International's 3.6% yield is backed by smoke-free products now generating 39% of revenue.

• Pfizer's 7.14% yield trades at just 7.7 times forward earnings, one of the most compelling combinations among large-cap dividend stocks.

• Both companies maintain dividend commitments, despite facing regulatory and patent headwinds.

• 10 stocks we like better than Philip Morris International ›

Building passive income is one of the most reliable ways to secure financial freedom. Instead of relying on active work for every paycheck, investors can put their money to work in dividend-paying stocks that send regular cash distributions straight to their brokerage accounts. These payouts can help cover everyday expenses, be reinvested to accelerate compounding, or simply serve as a cushion during volatile markets.

Dividend stocks are especially attractive because they combine income with the potential for long-term capital appreciation. Unlike bonds, which lock you into fixed payments, the strongest dividend payers often raise their distributions over time, protecting your purchasing power against inflation. And unlike growth stocks that reinvest all their profits, dividend companies deliberately share profits with shareholders, demonstrating both maturity and confidence in their cash-generating ability.

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Within this space, some of the best opportunities come from established companies that trade at reasonable valuations while offering above-average yields. Two such names stand out: Philip Morris International (NYSE: PM) and Pfizer (NYSE: PFE). Both deliver high current income, along with additional catalysts that could support long-term dividend sustainability.

Philip Morris' smoke-free transformation

Philip Morris International yields 3.6% with an 80% payout ratio that looks sustainable given the company's transformation. Smoke-free products -- primarily IQOS heated tobacco and ZYN nicotine pouches -- generated 39% of 2024 revenue, with dozens of markets already majority smoke-free. The Swedish Match acquisition planted Philip Morris in the fastest-growing nicotine format, and a recent lawsuit over ZYN pricing was dismissed with prejudice, removing a key overhang. Management just raised the dividend 8.9% to a $5.88 annual rate, signaling confidence in the transition.

The risks are real but manageable. U.S. and global regulators continue scrutinizing nicotine pouches and heated tobacco, which could tighten marketing rules or increase taxes. The FDA's menthol ban proposal was withdrawn in early 2025, helping near-term prospects, but the issue could resurface through state actions. At 19.4 times forward earnings versus 22 times for the S&P 500, Philip Morris trades at a discount while offering stellar income and a credible path to smoke-free growth.

Pfizer's high-yield recovery play

Pfizer offers a 7.14% yield at just 7.7 times forward earnings -- a combination rarely seen outside of distressed situations. Yet the company is far from distress, guiding for $61 billion to $64 billion in 2025 revenue and recently raising earnings-per-share guidance. Growth drivers include Prevnar 20 for pneumonia prevention, Abrysvo for respiratory syncytial virus, and Velsipity for ulcerative colitis, plus the Seagen oncology portfolio. Most notably, Pfizer agreed to acquire obesity drug developer Metsera for up to $7.3 billion, reentering a mega-market after discontinuing its in-house oral GLP-1 program.

The 90% payout ratio leaves little room for error, and execution risks abound. Patent cliffs and U.S. price negotiations under the Inflation Reduction Act pressure margins, while the Metsera deal must deliver to justify the price tag. But with expense guidance trending lower and management reiterating dividend commitment, the risk-reward balance looks compelling. For income investors willing to accept some uncertainty, Pfizer's combination of high yield and low valuation offers substantial upside if execution holds.

The passive income playbook

Both stocks offer different paths to passive income success. Philip Morris offers a moderate 3.6% yield, accompanied by steady growth potential as smoke-free products continue to expand. Pfizer delivers immediate gratification at 7.14% with optionality for a turnaround. Together, they yield roughly 5.4% -- more than triple the S&P 500's average.

The key to passive income investing is finding sustainable yields backed by real business fundamentals. Philip Morris has the transformation story and pricing power. Pfizer has the pipeline depth and valuation cushion. Both face regulatory and competitive challenges, but their recent dividend increases suggest that management sees clear paths forward. For investors seeking income without sacrificing total return potential, these two offer compelling entry points.

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George Budwell has positions in Pfizer and Philip Morris International. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.