Many companies reward shareholders by passing along a portion of profits through dividends. But oftentimes, the dividend yield on a stock might not be much to write home about. Many growth-focused companies don’t pay dividends at all, which is why the yield on the S&P 500 (SNPINDEX: ^GSPC) has fallen to just 1.4%.
However, there are some companies that yield a considerable amount — to the point where the dividend is a core part of the investment thesis. Stocks with reliable dividends and high yields can be excellent ways to collect passive income no matter what the broader market is doing.
Here’s why these three fool.com contributors think Chevron (CVX -0.59%), Brookfield Renewable Partners (BEP -1.72%) (BEPC -0.71%), and MSC Industrial Direct (MSM -1.26%) are three high-yield dividend stocks to buy now.
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An ultra-high-quality leader in the oil patch
Daniel Foelber (Chevron): Chevron stock is hovering around a three-year low. The sell-off in the integrated oil major could be a phenomenal buying opportunity for income investors.
The company has raised its dividend for 38 consecutive years, an impressive track record considering multiple oil and gas downturns and recessions have occurred during that period. The sell-off in the stock has pushed its yield up to 4.8%, providing investors with the opportunity to generate sizable passive income.
And Chevron has an excellent balance sheet that acts as a cushion in case of a prolonged oil and gas downturn. The company has used outsize profits in recent years to pay down debt and return cash to investors through buybacks and dividends. It has just $17.2 billion in net long-term debt and an ultra-low debt-to-capital ratio of just 13.6%, showcasing how its capital structure isn’t dependent on debt.
Despite its strengths, Chevron will probably generate a lot less free cash flow (FCF) if oil prices stay at lower levels (they are at their lowest level in four years). And although the company has reduced its cost of production over time, there comes a point when it can no longer support its dividend and capital-spending plans with cash.
At current oil prices, management will likely pull back on capital spending and buybacks, but it still has a margin for error considering 75% of its oil investments can break even below $50 per barrel. The company has been testing its new “triple frac” technology, which could reduce costs and cut completion times for new wells in the Permian Basin.
Another advantage of Chevron over other producers is its geographic diversification. It isn’t dependent on one region and has a massive refining business and growing low-carbon segment.
The company has what it takes to generate positive FCF even at lower oil prices and support its growing dividend. In past downturns, it has pulled back on stock repurchases and spending but continued to support the dividend by leaning on its balance sheet.
If oil prices fall below $50 per barrel, many companies would be in dire straits. But the business has proved time and time again that investors can count on it for passive income even during downturns.
Add it all up, and Chevron is as safe a bet as you’ll find in the oil patch.
Losing sleep over market volatility? Sleep soundly with Brookfield Renewable Partners
Scott Levine (Brookfield Renewable Partners): With markets turning in topsy-turvy performances right now, many investors are eager for some stability. At the forefront of the many ways that they can gird themselves, buying reliable dividend stocks like green energy specialist Brookfield Renewable Partners is a savvy choice. The limited partnership currently offers an enticing 7.3% forward yield.
Providing an ultra-high yield, Brookfield might spark doubt in investors who question whether the company can sustain its generous payout during the current market downturn. But that’s the allure: With its stable business model, the company enjoys tremendous resilience during times like these.
From solar to wind to other green energy assets, Brookfield Renewable Partners operates a massive global green energy portfolio — about 46 gigawatts of operating capacity — and it inks long-term deals with customers, which agree to purchase the generated power.
This model ensures that the company will continue generating revenue, and it will have the resources to continue rewarding investors. In its fourth-quarter 2024 financial results, for example, management noted that about 90% of the company’s generation capacity is contracted, and about 70% of its revenue is protected from inflation.
In its relatively short time as a publicly held company, it has demonstrated steadfast dedication to returning capital to investors, further illustrating its appeal. Every year since its initial public offering in 2011, the company has hiked its dividend by at least 5%. Regarding the years ahead, management has stated a goal of continuing to boost its dividend 5% to 9% annually.
For income-hungry investors, now’s a great time to buy Brookfield Renewable Partners’ stock, which is currently trading at a discount to its historical valuation.
Near-term risk, long-term opportunity
Lee Samaha (MSC Industrial Direct): It’s incredibly challenging to know whether the White Houe tariffs are tactical (to aid trade-deal negotiations) or strategic (to engineer a long-term structural shift in the global economy), but it’s probably true to think they are a bit of both.
However, one thing we do know with a high degree of certainty is that President Donald Trump, one way or another, wants to see the U.S. rebuild its industrial base. That could be great news for metalworking supply company MSC Industrial.
Readers should be under no illusions: If the current uncertainty persists, there’s a serious risk of an industrial recession, and MSC Industrial will inevitably suffer the consequences.
However, the long-term outlook is brighter, as a shift in manufacturing back to the U.S. implies an improving environment for metalworking suppliers. The company has negative exposure to tariffs via 10% of its cost of goods sold from China, with a similar amount from Europe, and low-single-digit percentages from Canada and Mexico.
On a positive note, distributors like MSC will try to pass on the tariff increases in pricing. In any case, most of its products are sourced in the U.S. All told, if you are confident that the global economy will avoid a recession and that the president’s determination to reinvigorate the industrial base will work, then MSC Industrial is a good choice for long-term investors.
Just be aware that the near-term risk is rising while companies set about reshaping their supply chains and product sourcing.