Three Dividend-Yielding Stocks Providing Rates of 4.5% to 7% That Can Strengthen Your Passive Income Source in 2025
The yield of the S&P 500 has decreased in recent times due to the prevalence of growth stocks in the index and stock prices exceeding dividend growth rates. Consequently, people seeking stocks to enhance their passive income may want to explore higher-yielding options.
As of now, Chevron (CVX 0.01%), United Parcel Service (UPS -0.20%), and the chemical specialist Dow (DOW -0.47%) provide yields of 4.5%, 5.3%, and 7%, respectively. Each company has experienced a dip in prices in the recent past, hovering around 52-week lows.
Our team of contributors believes the dip in these dividend stocks signifies a buying opportunity for patience-driven investors.
Chevron's acquisition of Hess has the potential to enhance its free cash flow
*Scott Levine* (Chevron): With the holiday season underway, many investors are diverting their attention from shopping to their financial goals for the upcoming year. For those dedicated to enhancing their passive income streams in 2025, Chevron is a stock worth considering, especially now.
The stock is currently available at a bargain price, offering investors an excellent opportunity to acquire shares, along with its 4.5% forward dividend yield. It is outstanding in generating cash, regularly outperforming its closest competitor, ExxonMobil (NYSE: XOM), in generating free cash flow (FCF) over the past five years.
The company could further improve its FCF should it successfully acquire Hess (NYSE: HES), which is becoming more likely as the Federal Trade Commission has approved the transaction following an antitrust review. According to management, the acquisition will aid in increasing revenues and FCF beyond the five-year production and FCF growth rates they had previously projected, extending into the 2030s. By boosting FCF, the company can continue increasing its dividend, as it has for more than 35 years.
Although Chevron had expected to finalize the acquisition in the first half of 2024, a dispute with ExxonMobil regarding the deal has caused uncertainty among investors, leading to a drop in the stock's price. Despite the uncertainty, both parties remain optimistic that the deal will proceed.
The stock currently trades at 7.2 times its operating cash flow, a discount to its five-year average cash flow multiple of 8.3. For those aiming to bolster their dividend income in the new year, the stock now presents an excellent opportunity.
UPS is experiencing a recovery in its key metrics
*Lee Samaha(UPS):* The past few years have been challenging for United Parcel Service with a slowdown in package deliveries due to a weak economy and a contentious labor dispute, resulting in elevated costs and weaker delivery volumes.
In an effort to address these challenges, UPS has prioritized higher-margin deliveries over volume growth and opted for a higher volume of lower-revenue deliveries. This has impacted margins, but the company has managed to maintain its focus on targeted markets like small and medium-sized businesses (SMBs) and healthcare while investing in technology such as automation and smart warehouses.
Most key metrics are showing positive trends, setting the stage for an earnings recovery in 2025. The increased labor expenses linked to the new contract are now incorporated into the financials, making it easier to compare results. UPS has also reduced capacity by 12,000 jobs to cut costs and adjust to market conditions. Delivery volumes are once again growing, and the overcapacity associated with package delivery is being addressed.
With this context in mind, UPS is expected to maintain its dividend in 2025, preparing for a multi-year recovery starting in 2025, when analysts forecast a 17% increase in earnings.
Dow is an industry-leading company with an extremely high dividend yield
*Daniel Foelber (Dow):* Despite falling over 25% in the past two months and being replaced by Sherwin-Williams in the Dow Jones Industrial Average, Dow shares hit an all-time low on Thursday. The Fed's indication of a slower pace of rate cuts has contributed to the stock's downfall, along with concerns about a prolonged slowdown in global demand, particularly in Europe and China.
Dow and its peers are heavily reliant on interest rates, as their capital-intensive business model translates to higher capital costs and interest expenses during periods of increased interest rates. However, the more substantial impact of extended high rates could be a protracted slowdown in global demand for Dow's products, particularly in Europe and China.
While earnings are down, valuing stocks based on trailing earnings may not provide an accurate picture, as valuations can appear cheap during periods of expansion and more expensive during downturns.
Earnings predictions for 2025 EPS are at $3.21, a significant increase from the projected $2.09 for 2024. However, this might change if interest rates remain high for an extended period. Dow's EPS has been erratic in recent years, ranging from $8.38 in 2020 to barely a dollar in 2023.
Instead of focusing solely on short-term outcomes, it's more beneficial to examine how the company navigates the cycle and develops over time. Dow boasts a robust financial standing and carries an investment-quality credit rating. Since separating from DowDuPont in 2019, the firm has maintained a constant $0.70 quarterly dividend per share, equating to $2.80 annually. This move has proven shrewd in the face of the industry's instability.
Some investors might choose to hold off and observe management's response to prolonged high interest rates before purchasing shares. The company will disclose its fourth-quarter and full-year 2024 earnings on January 30, offering potential insights into its future trajectory.
Nevertheless, Dow has plummeted to such bargain basement prices that it's worth considering for investors with a long-term perspective. Its 7% yield places it among the highest-yielding stocks in the S&P 500, offering a persuasive motive to keep it in one's portfolio, despite anticipating yet another turbulent year in 2025.
Given the current market conditions, diversifying one's portfolio with high-yielding stocks like Chevron, UPS, and Dow could be a strategic move for investors looking to maximize their returns in finance and investing. Chevron, with its 4.5% yield, is currently offering a bargain price for share acquisition, having outperformed ExxonMobil in free cash flow over the past five years. UPS is expected to maintain its dividend in 2025 as it recovers from previous challenges, with estimates suggesting a 17% increase in earnings from 2025. Lastly, Dow, despite its recent dip, boasts a high dividend yield of 7% and an investment-quality credit rating, making it an appealing option for long-term investors.
