All it takes is $2,500 invested in Walmart and each of these 2 Dow dividend stocks to generate over $200 in passive income per year

The stock market can be a great vehicle to build wealth over time. But it can also be used to generate passive dividend income without having to sell shares.

The Dow Jones Industrial Average is full of dividend paying companies including Walmart (WMT -0.07%), Home Depot (HD -0.13%)and Chevron (CVX -0.65%).

Investing $2,500 in each stock should generate at least $200 in passive income per year. Here’s why all three dividend stocks are worth buying now.

Image source: Getty Images.

Walmart is back and better than ever

Walmart held a turnaround masterclass. In just a few years, it went from slowing growth and lower margins to accelerated growth and reasonable margins.

In the second quarter of fiscal 2025, Walmart grew net sales by 4.7% and operating income by 8.5% compared to the same quarter in its last fiscal year. It generates significantly higher revenue due to the consistent growth of Sam’s Club and the expansion of its home delivery program, Walmart+.

For the first half of fiscal 2025, which ended July 31, Walmart’s members and other revenue grew 18.5%, or nearly half a billion dollars — which had a sizeable impact on its bottom line, as revenue of membership is a large margin. If Walmart can generate more revenue from subscriptions, it can get closer to a Costco-such as the business model where very little profit is made from the sale of goods and services, and membership fees generate profits.

In addition to growing its subscription business and e-commerce, Walmart has made several internal improvements, such as better inventory management and investments in automation.

Walmart could move from a single-digit growth business to a double-digit growth business while passing profits to shareholders through dividends and buybacks. The most recent dividend increase in February was the largest in 10 years — boosting the payout by 9%. I would expect increases of a similar size going forward.

Walmart is up 44% year-to-date and has become much more expensive — with a forward price-to-earnings ratio of 31 and a dividend yield of just 1.1%. Because it’s priced higher as a growth stock, investing in Walmart could be a great long-term decision even at a high valuation — but only for investors with a higher risk tolerance who don’t mind generating income much less passive than them. could be obtained from other Dow stocks.

Home Depot is built to last

Home Depot is down less than 6% from its all-time high. Shares rallied, which may seem odd given that Home Depot reported decent but not great fiscal 2Q24 results a few weeks ago and cut its guidance for the full year.

Like Walmart, Home Depot investors seem more focused on the company’s trajectory than current results. Home Depot has done a good job of managing lower consumer spending on discretionary goods and higher interest rates — which have hurt spending on housing and home improvement projects.

As Home Depot’s management discussed on its recent earnings call, the pandemic has taken a toll on demand for many of its products. Home Depot has faced a highly challenging combination of cost pressures related to inflation and consumers who may delay spending heavily on home improvements until better financing conditions are available when interest rates fall.

As Home Depot executive vice president of merchandising Billy Bastek said on the fiscal second quarter 2024 earnings call: “Big-ticket transactions for those over $1,000 were down 5.8% compared to the second quarter of last year. We continued to see softer engagement in larger discretionary projects where clients typically use financing to fund the project, such as kitchen and bathroom remodeling.”

In a vacuum, Home Depot’s results aren’t great. But in the context of a recession, just a few percentage points of lower sales and earnings is pretty impressive. Home Depot has a stable and growing dividend — which it can easily afford to raise throughout this recession thanks to its reasonable payout ratio. Overall, Home Depot and its 2.4% yield are a good choice for investors who don’t mind cyclicality.

Chevron can thrive without Hess

While investors may be bullish on Walmart and Home Depot, they may be too focused on Chevron’s current state. The oil major is down slightly year-to-date, compared with a 16% gain for its peer, ExxonMobil. Over the past five years, Exxon is up 72%, compared to just 28% for Chevron.

Exxon is delivering impressive results — checking all the boxes for accelerating oil and gas production, investing in low-carbon solutions and setting clear profitability goals across its business units.

Last October, Chevron and Exxon announced their biggest acquisitions in over a decade. Exxon completed its acquisition of Pioneer Natural Resources in early May. But Chevron’s acquisition of Hess (NYSE: HES) she is late. Hess owns a 30% stake in a drilling consortium off Guyana, while Exxon owns a 45% stake and CNOOC owns a 25% stake. Not only is Exxon preventing Hess from passing the property to Chevron, but it may even be looking to poach the stake for itself — giving it a majority interest. Hess could remain an independent company or sell to Exxon. In any case, the uncertainty surrounding the deal makes Chevron less of an elegant investment opportunity than Exxon right now.

The assets Chevron would get from Hess would diversify its business with some potentially cash-cow international assets. But Chevron doesn’t need understanding to be successful. She is developing a lot of projects that have nothing to do with Hess.

Chevron has raised its dividend for 37 consecutive years and yields 4.5% — making it a great choice for passive income investors looking to buy an out-of-favor oil company.