My Top Dividend Stock To Buy In September
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In recent years, renewable energy has been getting a lot of attention. Solar-powered homes are becoming increasingly common, and electric vehicles (EVs) are everywhere—especially here in Vegas, where it feels like you can't drive anywhere without seeing at least four Teslas.
This shift has led many to believe that renewables are set to take over the world, and fossil fuels are on their way out. But I don't think it's that simple.
People often underestimate just how deeply fossil fuels are embedded in our daily lives, and I think the transition to a greater reliance on renewable energy is going to take decades, not just a few years.
During this time, global energy demand isn’t going anywhere but up, which creates a strong tailwind for companies in the energy sector like Chevron (CVX), which is my top dividend stock to buy in September (you can learn about some of my other top picks here).
Right now, Chevron is looking prime for purchase. Over the last month, the stock has dropped by about 6%, leaving it down 1.8% year-to-date and sitting right near its 52-week low.
On top of that, Chevron's valuation metrics are looking a lot better than their five-year averages, which suggests the stock is trading at a discount relative to its historical norms.
So with that said, why has the share price taken a hit?
Well, Chevron’s Q2 2024 earnings were a bit of a mixed bag. While the company did report a 4.7% year-over-year revenue increase—which is good—it ended up missing its earnings per share (EPS) expectations, which contributed to the stock’s decline.
In addition, Chevron is having to jump through some hoops regarding its planned merger with Hess Corporation (HES). A delay in ongoing arbitration with Exxon Mobil (XOM) over whether Chevron’s bid for Hess triggered a right of first refusal clause in their Guyana joint operating agreement has also negatively impacted the stock recently.
To expand on that, a large portion of the production and cash flow growth Chevron expects from their deal with Hess will come from this Guyana venture. This project is a joint venture between Exxon, which holds a 45% stake; Hess, with 30%; and China's CNOOC, with 25%.
The agreement between these partners includes a change of control clause that allows the others to make a preemptive bid if one partner decides to sell their stake. Exxon believes Chevron’s acquisition of Hess triggers this clause, but Chevron disagrees, arguing that it's buying the entire Hess company, not just its stake in the Stabroek block.
Despite these short-term issues, I’m still confident in Chevron as a long-term investment, especially for dividend investors. As a dividend aristocrat with 36 years of growth, Chevron’s current dividend yield is hovering around 4.5% thanks to the share price drop, which certainly helps inspire patience while these short-term issues get sorted out.
Looking at the bigger picture, the energy sector is one of the most important of them all. It’s one of the few industries that directly impacts almost every other industry out there. Whether it’s manufacturing, transportation, or technology, energy is the backbone that keeps everything running.
And here’s the thing: fossil fuels aren’t just used for energy. They’re the raw materials for an extremely wide range of products—more than you probably realize.
Over 99% of plastics are made from chemicals sourced from fossil fuels, and those plastics are everywhere—from telephones and TVs to vacuum cleaners and even our clothes. Polyester, one of the most common fibers in clothing, is derived from petroleum.
Believe it or not, fossil fuels even show up in our food. For example, petroleum-based wax is a key ingredient in chewing gum, and more snacks than you’d think contain coloring and other additives derived from petroleum products.
All of this is to say that fossil fuels can be found in nearly every touchpoint in our lives, and that’s not changing anytime soon. Because of that, I think that a company like Chevron with its dominant market position, attractive valuation, and essential role in the global economy offers a great opportunity right now for dividend investors.
With that said, I want to hear from you: Which discounted stocks do you have your eye on for this upcoming month? Write to me here and let me know.
And if you want to learn about some other great buying opportunities right now, I've got a few more for you here.
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IN MY PORTFOLIO 📈
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ICYMI 🎥
All My Dividend Income In August | $79,000 PORTFOLIO
In August, I received 8 dividend payments from some of my favorite companies like LOW, PG, and WSM.
In this video, we’ll go through each of those payments so you can see all of my dividend income received for the month, as well as my total income received so far in 2024.
CAREFULLY CURATED 🔍
📺 The Biggest Dividend Trap - In this video, Russ shares his personal experience with a common mistake that many dividend investors, including myself, have made. It's a tough lesson that a lot of us learn the hard way, but thanks to this video, now you don't have to!
🎧 The Big Trend In Big Tobacco - A deep dive into Zyns, vapes, and the strange world of new nicotine products. If you're invested in big tobacco companies like Altria Group (MO), Philip Morris (PM), or British-American Tobacco (BTI), this episode of the Odd Lots podcast is a must-listen.
📚 Why Dividends DO Matter - If we lived in a perfect world where everyone was rational, markets were always efficient, and returns were consistent every year, then sure, maybe dividends wouldn't matter. But that's just not the world we live in.
SINCE YOU ASKED 💬
"What do you think about high-yielders, like BDC's, and reinvesting them even without any dividend growth?"
- @miguelclaro7005 | YouTube
I definitely think high-yield stocks have their place in a well-balanced portfolio. When it comes to BDCs (Business Development Companies), I think there are some solid options out there.
Personally, I hold MAIN and OBDC in my portfolio, and they’ve done really well for me. ARCC is another one that I think is worth looking into.
While it’s true that many BDCs don’t offer much in the way of dividend growth, I don’t necessarily mind that if the yield is high enough. Most BDCs have dividend yields above 10%, so I think it's a fair trade-off.
On the flip side, when a stock has a lower yield, I want to see a high rate of dividend growth to make up for it. That’s the trade-off I look for when it comes to dividend growth stocks.
Where I struggle is with stocks that have both a low yield and low rate of dividend growth. Take PG, for example—right now, it’s yielding around 2.4% with a near 6% dividend growth CAGR.
While I do have a big position in PG, and really appreciate the SWAN (Sleep Well At Night) aspect of the company, I don't want to have too many lower yield/lower growth stocks like that in my portfolio.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers which financial red flags they look for in an investment. Here are some of the responses:
James said: I think debt is a big red flag. Are you making a move and driving debt up so high you can never pay it off, or is it good debt? People always say good debt doesn’t exist and that’s not true. Good debt is when you borrow to invest in something that creates more value than the debt itself, allowing you to profit while paying it off.
Chris said: One thing I like to look for in companies that have negative equity is their cash flow over the last 10 years to see how they have allocated their CFO before debt. Then, I compare the net issued debt with cash invested back in the business and share buybacks. Some companies may have issued net debt to finance about 30% to 50% of the amount invested back in the business, which I think is reasonable (as long as the debt position of the company is healthy). But some others may have issued debt for 100% or more of the cash invested back in the company. Moreover, in many cases, they could have run the business without issuing debt by doing less repurchases. In that case, I consider that they have issued net debt to do repurchases which, I think, is negative.
LAST WORD 👋
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