These industry-leading companies should continue to reward investors with growing dividends for years to come.
The stock market can be a great way to build wealth over time, but it can also be used to generate passive income from dividends without having to sell shares.
of Dow Jones Industrial Average There are many good companies that pay dividends, including: Walmart (WMT -0.07%), Home Depot (HD -0.13%)and Chevron (CVX -0.65%).
Investing $2,500 in each stock should provide you with at least $200 in passive income per year. Here's why all three dividend stocks are worth buying now.
Walmart is back and better than ever
Walmart has staged an impressive turnaround, going from slowing growth and declining margins to faster growth and reasonable margins in just a few years.
Walmart's second-quarter net sales increased 4.7% year over year, and its operating profit increased 8.5%. Membership revenue has increased significantly due to the steady growth of Sam's Club and the expansion of its home delivery program, Walmart+.
For the first half of fiscal 2025 (ending July 31), Walmart's membership and other revenues increased 18.5%, or nearly $500 million. Because membership revenue has high margins, this had a sizeable impact on the company's bottom line. If Walmart could generate more revenue from memberships, it could CostcoThe business model makes little profit from selling products or services, and instead derives profits from membership fees.
In addition to expanding its subscription business and e-commerce, Walmart has also made some internal improvements, including improving inventory management and investing in automation.
Walmart has the potential to move from a single-digit to a double-digit growth company while still returning profits to shareholders through dividends and share buybacks. Its most recent dividend hike in February was its largest in a decade, increasing the payout by 9%, and it expects similar hikes in the future.
Walmart is up 44% so far this year and is fairly overvalued at 31 times earnings and a dividend yield of just 1.1%. Because it's valued as a growth stock, investing in Walmart could be a great long-term decision even at its high valuation — but only for investors with a high risk tolerance who don't mind earning much less passive income than other Dow Jones stocks.
Home Depot is built to last
Home Depot is down less than 6% from its all-time high, and while the stock is trending higher, that may seem odd considering that just a few weeks ago, Home Depot reported decent-but-not-great second-quarter fiscal 2024 results and lowered its full-year outlook.
Like Walmart, Home Depot investors appear to be more focused on the company's future trajectory than its current performance. Home Depot has weathered declining consumer spending on discretionary goods and rising interest rates that have impacted spending on housing and home improvement projects.
As Home Depot executives noted in a recent earnings call, the pandemic has brought forward demand for many of its products, and the company faces a tough combination of inflation-related cost pressures and consumers who may be putting off big home improvement purchases until interest rates fall and better financing terms become available.
“Transactions of high-value items over $1,000 declined 5.8% compared to the second quarter of last year, as activity continues to slow for larger discretionary projects, such as kitchen and bathroom remodels, where customers typically use financing to fund the project,” Billy Bastek, executive vice president of merchandising at Home Depot, said during the company's fiscal second-quarter 2024 earnings call.
Home Depot's performance in isolation isn't that great. But in a recessionary environment, even a few percentage points of decline in sales and profits is pretty impressive. Home Depot has a stable and growing dividend, and thanks to a reasonable payout ratio, it could easily grow even during a recession. Overall, Home Depot and its 2.4% yield are a good choice for investors who don't mind cyclicals.
Chevron can thrive without Hess
Investors may be optimistic about Walmart and Home Depot, but they may be too focused on Chevron's current situation. The oil giant is down slightly so far this year, while its peer Chevron is up 16%. ExxonMobilOver the past five years, Exxon has risen 72%, while Chevron has risen just 28%.
Exxon is doing an impressive job checking off all the boxes by accelerating oil and gas production, investing in low-carbon solutions and setting clear profitability targets across its business units.
Last October, Chevron and Exxon announced their first major acquisition in more than a decade. Exxon completed its acquisition of Pioneer Natural Resources in early May. But Chevron's Hess (NYSE: HES) It's delayed. Hess owns a 30% stake in the drilling consortium offshore Guyana, while Exxon owns 45% and CNOOC owns 25%. Exxon is not only blocking Hess from transferring ownership to Chevron, but may also be trying to snatch up the shares to take a majority stake. Hess could remain an independent company or sell to Exxon. But either way, the uncertainty around the deal makes Chevron a less sophisticated investment opportunity than Exxon at this point.
The assets Chevron gets from Hess will diversify its business with international assets that could generate profits in the future, but the deal won't be a silver bullet for Chevron, which is developing many projects that have nothing to do with Hess.
Chevron has increased its dividend for 37 consecutive years and has a 4.5% yield, making it a great choice for passive-income investors looking to buy into an out-of-favor oil giant.
Daniel Folber has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Chevron, Costco Wholesale, The Home Depot, and Walmart. The Motley Fool has a disclosure policy.