We recently compiled a list of the 7 Best Stocks to Buy for Passive Income. In this article, we are going to take a look at where Chevron Corporation (NYSE:CVX) stands against the other good stocks to buy for passive income.
With rising costs in today’s world, people are constantly searching for ways to earn additional income. To do this, many rely on side hustles to make ends meet. A recent survey of 2,300 people by Bankrate revealed that over a third (36%) of US adults have a side job. This trend is proving increasingly profitable. In 2023, side hustles brought in an extra $810 per month on average; this year, that figure has grown to $891.
While side hustles have proven profitable for many, some individuals prefer earning income passively rather than through additional work. During the 2020 pandemic, vending machines emerged as a popular passive income idea. From 2019 to 2023, mentions of passive income and vending machines on platforms like X and Instagram more than tripled and grew sixfold, respectively, according to the social media management company Sprinklr. Google searches for passive income also surged by about 75% during that time. Although many Americans are earning money from this investment, its long-term success has yet to be fully proven.
The concept of earning passive income becomes more straightforward and clear through investing in stocks, particularly dividend equities. These investments have already demonstrated their value, consistently delivering strong returns in the past. Over the years, the portion of personal income derived from dividends has gradually risen, making them a significant source of earnings. As reported by S&P Dow Jones Indices, dividend income has grown from 2.68% in the fourth quarter of 1980 to 7.88% in the second quarter of 2024, while interest income has dropped from 14.58% to 7.61% during the same timeframe. The report also mentioned that since 1936, dividends have contributed to over one-third of the total returns from the broader market, while capital gains have accounted for the remaining two-thirds.
Also read: 12 Best Long-Term Stocks to Buy According To Warren Buffett
Dividend stocks with higher yields often attract investors. In addition, companies that have consistently increased their payouts over the years are excellent for generating passive income. As long as they maintain this trend, they offer a growing stream of income, often with less volatility than regular stocks. While these stocks may not always provide the highest yields compared to other dividend-paying options, patient investors who choose companies that raise their dividends consistently, regardless of market conditions, can eventually enjoy income streams that surpass the returns from bonds.
The growing significance of dividend stocks is evident in the steady increase in payouts by companies worldwide. Global income investors experienced a robust second quarter of 2024, with payouts rising 5.8% to a record high of $606.1 billion, according to the latest Janus Henderson Global Dividend Index report. Following this strong performance and considering the anticipated contributions from new dividend payers, the forecast for 2024 dividends has been revised upward. It is now expected that global companies will distribute $1.74 trillion in dividends, a 6.4% increase from 2023 on an underlying basis (up from the previously forecasted 5.0%) and a headline increase of 4.7% (up from the earlier estimate of 3.9%). With this, we will have a look at the best stocks to buy for passive income.
Our Methodology:
For this list, we used a stock screener to identify dividend-paying companies with yields over 4.5% as of September 16. From this list, we selected companies known for consistently increasing their dividends, ideally those that have done so for at least 10 years. We then chose the top 7 stocks from this list based on the number of hedge funds holding stakes in them at the end of Q2 2024, according to Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
An aerial view of an oil rig at sea, the sun glinting off its structure.
Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 64
Dividend Yield as of September 16: 4.64%
Chevron Corporation (NYSE:CVX) is a Texas-based multinational energy company that specializes in oil and gas. As an integrated energy company, its operations span the entire energy sector, including oil and natural gas production (upstream), energy transportation (midstream), and chemicals and refining (downstream). Each of these segments tends to perform differently at various times. For instance, the downstream segment often benefits from lower oil and gas prices, which negatively affect the upstream. Meanwhile, midstream pipelines generate stable cash flows throughout the energy cycle. Chevron’s diversified operations help cushion the natural highs and lows of the volatile energy sector.
Chevron Corporation (NYSE:CVX) reported strong earnings in the second quarter of 2024. The company generated over $51 billion in revenues, which showed a 4.7% growth from the same period last year. It boasts one of the strongest balance sheets among its peers, with a debt-to-equity ratio of around 0.15, which is low for any business. What’s most significant, however, is that this gives Chevron the financial flexibility to take on more debt during industry downturns, allowing it to maintain support for its operations and dividends. Its payouts are also supported by strong cash flow generation. In the most recent quarter, the company reported an operating cash flow of $6.3 billion and its free cash flow was $2.3 billion.
Chevron Corporation (NYSE:CVX) remained committed to its shareholder obligation, returning $6 billion to investors through dividends and share repurchases in Q2 2024. This marks the ninth consecutive quarter in which over $5 billion has been returned to shareholders. On August 2, it declared a quarterly dividend of $1.62 per share, which was in line with its previous dividend. Overall, the company has been rewarding shareholders with growing dividends for the past 37 consecutive years, which makes CVX one of the best stocks to buy for passive income. The stock has an impressive dividend yield of 4.64%, as recorded on September 16.
At the end of June 2024, 64 hedge funds owned stakes in Chevron Corporation (NYSE:CVX), up from 62 in the previous quarter, as per Insider Monkey’s database. These stakes have a total value of over $22.4 billion. Warren Buffett’s Berkshire Hathaway owned the largest stake in the company in Q2.
Overall CVX ranks 3rd on our list of the best stocks to buy for passive income. While we acknowledge the potential for CVX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.