3 Unstoppable Dow Dividend Aristocrats Who Are Passive Income Machines

The stock market is everywhere these days, seeing a combination of bull days and sharp bear days as it struggles to interpret a mix of macro data and company-specific issues. And with earnings season underway, investors’ eyes will no doubt turn to corporate performance and expectations during a period of rising interest rates and geopolitical tensions.

Chevron (CLC -2.21% ), caterpillar ( CAT -6.55% )and walmart (WMT -1.88% ) are all Dow Jones Industrial Average stocks and all have proven short and long term upside potential which makes them good companies to buy even if the volatility escalates from here. Additionally, all three stocks are dividend aristocrats, which are S&P500 components that have paid and increased their dividend annually for at least 25 consecutive years.

Here’s what makes these three Dow companies a great buy now.

Image source: Getty Images.

1. Chevron: A High Yielding Dividend Stock for Good and Bad Times

It’s no secret that oil and gas stocks are absolutely crushing the market so far in 2022, just as they did in 2021. But not too long ago oil and gas were the worst performing sector. In 2020, energy sector stocks fell an average of 36.5%, compared to a 16.3% gain in the S&P 500. Even after the recent monster gain in the energy sector, it still has produced a total return that was lower than the total return of the S&P 500 over the past three years. years.

^IXE graph

^ IXE Data by YCharts

High oil and gas prices could persist, given years of underinvestment in the industry. Another force pushing oil prices higher is changing supply and demand dynamics due to geopolitical tensions. The European market and other markets around the world are trying to replace oil and gas imports from Russia, one of the three largest oil and gas exporting countries in the world. This move effectively removes much of the supply from the market, creating an even greater imbalance as the global economy opens up again.

Chevron stock is currently hovering around its all-time high. But there are plenty of reasons why it’s still a great buy now. For investors who think Chevron’s earnings will be higher in 2022 than they were in 2021, the price-to-earnings (P/E) ratio of 21.1 seems very affordable. Chevron also has a dividend yield of 3.4%. Even better, its debt-to-equity and financial debt-to-equity ratios are lower than ExxonMobil, BP, Shelland TotalEnergies — meaning its balance sheet is well positioned to weather a lower oil and gas price environment. Chevron also made some timely investments during the 2020 recession that look bright in hindsight. And finally, Chevron lost less money in 2020 than ExxonMobil, BP, Shell and TotalEnergies, showing it was better positioned to weather a deep recession.

Chevron doesn’t have as many advantages as a pure exploration and production company like Conoco Phillips. But its diverse business model, low cost of production, and strong balance sheet make it the best energy stock to buy right now.

2. Caterpillar is a coil spring for years of growth

Despite continued supply chain disruptions, Caterpillar’s latest earnings report showed signs that its business is returning to pre-pandemic levels. Caterpillar’s fourth quarter 2021 revenue was the highest in nearly three years, and fourth quarter 2021 net income was the highest quarterly performance in five years. Caterpillar ended 2021 with record net income of $6.49 billion – which is the main reason why its P/E ratio is only 18.4 despite the strong underperformance of the share price. underlying.

CAT Revenue Chart (Quarterly)

CAT Revenue Data (Quarterly) by YCharts

Given the current state of the oil and gas, consulting, mining and agriculture sectors, it looks like Caterpillar could have a breakout year in 2022.

For context, Caterpillar has not been able to sustain a multi-year period of consistent revenue and profit growth since the early 2010s. This is partly due to the economic cycle itself. But the U.S.-China trade war and the COVID-19 pandemic have also disrupted any hopes of revenue and profit growth.

Caterpillar’s record annual revenue of $65.9 billion was 10 years ago in 2012. Chances are it could set a new record this year. But the big question for cyclical stocks like Caterpillar is whether or not they can sustain a multi-year bull cycle. Multi-year up cycles provide additional free cash flow needed to pay down debt or buy back stock. Caterpillar’s balance sheet is decent but could benefit from a few good years in a row. Regardless of when the next bull cycle is, Caterpillar is paying investors to wait with a dividend yield of 2.1%.

3. Inflation is not a problem for Walmart

Walmart shares hit a new all-time high on April 20 as investors flock to inflation-resistant stocks.

CLC Chart

CVX data by YCharts

The short-term investment thesis for Walmart stocks is very simple. In an inflationary environment, consumers will limit their discretionary spending and focus more on the essentials. It goes without saying that the increase in food costs, energy costs and prices at the pump affects the middle and lower class much more than the upper class. So, as prices go up, the idea is that consumers will start buying their household goods, clothing, and other essentials from Walmart instead of a more expensive retailer.

Walmart’s short-term rise complements its long-term investment thesis, which is based on a strong balance sheet, a history of dividend increases and stock buybacks, stable and growing earnings and a reasonable valuation.

A diverse basket designed for tough times

Chevron, Caterpillar, and Walmart may belong to different sectors of the economy, but the three companies have a lot in common (besides being part of DJIA) when it comes to why they’re good stocks. with dividends to buy now. Every business is inflation resistant and can perform well even if the economy starts to slow down.

Additionally, all three companies are dividend aristocrats, so investors can count on them for a stable and growing stream of passive income, even if the economy turns into a bear market. Add it all up and you have three reliable stocks worth considering right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.