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Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.

Motley Fool Issues Rare “All In” Buy Alert

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The prospects of upcoming interest rate hikes and a possible economic recession have rocked financial markets in recent months. For instance, the S&P 500 index has plunged 19% year to date.

But growing passive income can take an investor's focus off of their unrealized losses in a market downturn like the current one. Here are three stocks that can provide income investors with safeer, market-beating, and rising passive income.

With a system of over 50,000 miles of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products pipelines, master limited partnership Enterprise Products Partners (EPD 0.46% ) is one of the biggest midstream companies in the world.

With the raw materials Enterprise Products Partners' infrastructure transports and stores being used in anything that uses petrochemicals (that's a lot of stuff), the demand for its infrastructure isn't going anywhere anytime soon. In fact, global economic growth and population growth will result in increased total demand for Enterprise Products Partners' pipelines through 2040 compared to 2019, according to the International Energy Agency's forecast.

This makes it likely that Enterprise Products Partners' quarterly distribution will build on its 23-year growth streak in the years ahead with low-single-digit raises each year. And with a distribution coverage ratio -- the degree to which a partnership's distributable cash flow covers its distribution payments -- of 1.7 in 2021, investors can rest assured that Enterprise Products Partners' market-crushing 7.3% distribution yield is very secure. 

Best of all, investors can scoop up units of the partnership at a trailing-12-month distributable cash flow ratio of 8.4. For a world-class business such as Enterprise Products Partners that's set to steadily grow at a low-single-digit clip annually, this is a bargain-bin valuation.

Because individuals and businesses desire access to hot water for bathing, washing, and industrial uses, the demand for hot water heaters is positioned to grow in the years ahead. This is the underlying thesis that makes residential and commercial water heater and boiler manufacturer A.O. Smith (AOS -0.27% ) so attractive.

Market research firm Allied Market Research anticipates the global water heater market will compound at 5.1% annually from $32.6 billion in 2017 to $48.5 billion by 2025.

Due to A.O. Smith's leading market share in an industry with a promising growth outlook, analysts believe the company will deliver 8% annual earnings growth through the next five years. 

And with a dividend payout ratio of 35.1% in 2021, the Dividend Aristocrat looks poised to extend its track record of 29 consecutive years of dividend growth moving forward. This manageable payout ratio should translate into high-single-digit annual dividend growth for the foreseeable future. On top of this solid growth potential, A.O. Smith's dividend yield is a market-topping 1.9%. 

The cherry on top is that all of this can be had by investors at a forward price-to-earnings (P/E) ratio of just 16.3. For context, this is below the S&P 500 index's forward P/E ratio of 16.7. Simply put, A.O. Smith is an above-average stock trading at a below-average valuation.

With nearly 2,200 home improvement stores in the U.S. and Canada, Lowe's (LOW -0.13% ) is the second largest home improvement retailer behind Home Depot. The investment thesis is that Lowe's can leverage its brand power in a fragmented, but massive $900 billion home improvement sector. 

Regardless of what the economy has done over the past 59 years, Lowe's has raised the payout to its shareholders, making it a Dividend King. And with the stock's payout ratio of only 23.3% in 2021, Lowe's should have room for a double-digit hike in the dividend later this month to extend its dividend growth streak to 60 years straight.

Thanks to consistently growing home improvement spending, analysts expect Lowe's will produce 14.5% annual earnings growth over the next five years. Investors can snatch up Lowe's market-besting 1.7% yield at a forward P/E ratio of merely 14.3. 

Kody Kester has positions in A. O. Smith, Enterprise Products Partners, Home Depot, and Lowe's. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends A. O. Smith, Enterprise Products Partners, and Lowe's. The Motley Fool has a disclosure policy.

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