The Nasdaq Composite(NASDAQINDEX: ^IXIC) started this week tumbling 4% on Monday -- the index's worst day since September 2022 -- and is still 12.5% off its all-time highs after today's trading session.
When the major indexes are making new all-time highs, it's easy to overlook the benefits of dividend stocks. But when the market is down, it's easier to appreciate the reliable income that dividends provide. They offer a way to book a return without selling shares, which can be useful for investors supplementing income in retirement or wanting extra dry powder that they can reinvest.
PepsiCo (NASDAQ: PEP), Chevron(NYSE: CVX), and Southern Company(NYSE: SO) have high yields that can provide ample passive income. Here's why all three dividend stocks are worth buying now.
Image source: Getty Images.
A safe stock at a dirt-cheap valuation
Pepsi checks all the boxes that investors look for when they scan the market for reliable dividend stocks. Its most recent 7% raise in February marked the 53rd consecutive year Pepsi has boosted its payout. Pepsi can raise its dividend year after year thanks to its diversified business model that supports steady earnings growth over time.
Pepsi has multiple top brands in the non-alcoholic beverage category, such as Mountain Dew, Gatorade, Naked Juice, Tropicana, Lipton, and more. It also owns Frito Lay and Quaker Oats, giving Pepsi access to snack and meal categories.
Even so, Pepsi's stock price has gone practically nowhere for about four years as volume growth has slowed. Pepsi has also pulled back on price increases since consumer spending is strained and has turned to other marketing efforts and promotions to drum up demand.
But while Pepsi isn't a fast-growing company, it does have a reliable dividend and a high yield of 3.6%. We know it can afford that dividend because its payout ratio -- dividends as a percentage of earnings -- was 75.5% in 2024. That's not bad for a mature business with low reinvestment needs.
What's more, the valuation is dirt cheap. Pepsi has a price-to-earnings (P/E) ratio of just 21.3, around its lowest levels in five years, and it trades at just 17.9 times analysts' earnings expectations for the next 12 months. That's cheaper than Coca-Cola's 28.3 P/E and forward P/E of 23.7.
Chevron can handle lower oil prices
At first glance, Chevron may seem like a risky stock that could cut its dividend during a downturn. After all, oil demand tends to fall during economic slowdowns, which could hurt Chevron's margins. But the company has been through several oil-specific downturns and economic slowdowns before. Despite these challenges, Chevron has an impressive track record of increasing its dividend. In January, it boosted its payout for the 38th consecutive year. The stock has a 4.4% dividend yield after Wednesday's close.
Chevron is a cash cow that can generate sizable free cash flow even at lower oil prices. Its strong asset portfolio and size help it achieve a low cost of production and a diversified asset base that isn't dependent on just one production region. Chevron also has a massive refining business and a growing low-carbon business.
One of the biggest red flags you'll find in the oil patch is poor balance sheets. Oftentimes, companies will take on debt to fund expansion projects. If it works, the gamble can lead to outsized gains. But debt can also amplify losses if oil prices fall. Chevron has a rock-solid balance sheet with very little debt because the company funds operations and long-term investments with free cash flow.
If oil prices fall and Chevron's margins are squeezed, the company will likely pull back on stock repurchases. Even if oil prices fall so far that Chevron can't support the dividend with cash flow, it can always rely on the strength of its balance sheet -- which is exactly how Chevron was able to raise its dividend even during the oil and gas downturn of 2020.
Add it all up, and Chevron is an elite high-yield dividend sock to buy now.
Southern Company has a clear path to grow its dividend for decades to come
Southern Company is a utility with a network of infrastructure assets in the southeastern U.S., although it also produces electricity from wind, solar, and natural gas across the country. Southern Company works with regulators and agencies to set prices, which gives it a steady stream of predictable income regardless of the economic cycle.
In fact, regulated electric utilities tend to be among the safest industries during a stock market sell-off or recession because demand for their services is relatively insulated from economic swings.
Investors have been flocking to stocks like Southern Company as a safe haven for passive income and capital preservation. The stock is hovering around an all-time high and is up over 7.7% year to date -- or 10.4% if you include dividends -- which is crushing the broader indexes. But even with this hot start in 2025, there are reasons to believe it is still a good buy.
For starters, Southern Company is not overpriced, with a P/E ratio of 22.2 and a forward P/E of 20.7. Despite the run-up in the stock price, Southern Company still has an attractive yield of 3.2%. And to top it all off, Southern Company has 23 consecutive years of dividend increases.
Population increases, the need for investments in grid stability, and the push for cleaner forms of energy can help support steady growth over time. It's also worth mentioning that Southern Company is an experienced operator of nuclear energy, making it well suited for investors who believe nuclear will continue to make up a growing share of the power grid.
Three dividend stocks you can count on no matter what
Pepsi, Chevron, and Southern Company may operate in entirely different sectors. But they share the common characteristics of track records for dividend raises, high yields, and industry-leading business models.
All three companies can support their growing payouts even if the stock market sell-off intensifies, making them ideal choices for risk-averse investors or anyone focused more on capital preservation than capital appreciation.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
Nvidia:if you invested $1,000 when we doubled down in 2009,you’d have $282,016!*
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $41,869!*
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $482,720!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.
