Aside from the movement of stock prices, investors may hesitate to take advantage of dividend stocks. With inflation currently around 6%, the average S&P 500 dividend yield of 1.5% may hold little appeal. Those with a relatively modest amount to invest, such as $400, may feel like that amount generates meager amounts of passive income.

However, some appealing dividend stocks offer returns far above 5% and sell for less than $400 per share -- and even that amount can bring investors some passive income. Target (TGT -0.71%), Texas Instruments (TI) (TXN 2.35%), and Chevron (CVX 1.20%) could serve as excellent starter stocks for such investors.

Target

Target stock has taken a hit in recent weeks due to supply-chain-related issues. Thanks to over-ordering, Target will likely have to unload billions of dollars worth of merchandise at significantly lower prices. Consequently, numerous investors dumped the stock.

Moreover, the Q1 earnings report may have hinted at these issues. Revenue of $25 billion in Q1 increased 4% versus the year-ago quarter. But despite its profit of $1 billion in Q1, earnings fell 51% year over year. Also, free cash flow came in at -$2.4 billion due to the high inventory and accounts payable costs.

However, the recent price action has reduced its P/E ratio to just 14. This is well below Walmart at a 28 P/E ratio and Costco at 43.

It also brings further benefits to income investors. Despite the free cash flow challenges, Target demonstrated a strong show of confidence, increasing its dividend by 20%. This also marked the 51st year of consecutive payout hikes, making it a Dividend King. That payout, now at $4.32 per share annually, yields 2.6% at approximately $172 per share.

Admittedly, the cash flow issues may appear troubling. Nonetheless, it is unlikely Target would risk its Dividend King status over a massive payout hike. That should indicate these challenges will not persist.

Texas Instruments

The outlook for Texas Instruments remains steady amid economic uncertainty. One of the green flags for the analog and embedded chipmaker is its position in the automotive and industrial sectors, which drive most of its revenue from more than 100,000 customers.

Moreover, it has quietly turned this business into a dividend powerhouse. At a price near $185 per share, its cash return has grown to $4.60 per share annually. This is only a 2.6% yield. However, the dividend grew at a compound annual growth rate of 25% between 2004 and 2021. This means that cash return has advanced at a rapid clip, even when not factoring in the rising share prices.

And the increases should continue. The $10.1 billion in revenue in the first half of 2022 grew 13% compared to the same period in 2021, leading to a net income of $4.5 billion in the first two quarters of this year. And that increased by 22% amid minimal increases in the cost of revenue and operating expenses.

Over the trailing 12 months, it generated $5.9 billion in free cash flow. Over the same time frame, it paid $4.1 billion in dividend costs. Despite recession fears, the chip sector is in a long-term secular growth trend that will need TI's analog chips. This bodes well for not only TI but also its income investors.

Chevron

The public may like to focus on green energy. Still, despite the focus on cleaner energy sources, the country still derives 68% of its energy from petroleum and natural gas, according to the Energy Information Administration.

Such energy sources will likely not go away soon, and this plays into the hands of Chevron. Chevron is a diversified energy company that drills, transports, and markets petroleum and natural gas. While it may heavily publicize its green energy initiatives, over 99% of revenue comes from upstream (drilling) and downstream (refining and distribution) activities.

Chevron's operations generated $16.7 billion in free cash flow in the first six months of 2022. That cash easily funds its dividend payment of $5.68 per share, a 6% increase from last year. At a cost of $5.5 billion for the first half of the year, the payout claims only 33% of free cash flows.

Additionally, with a share price approaching $160 per share, Chevron stockholders earn a cash return of 3.7%. That marks the 35th consecutive year the annual dividend has risen, making it a Dividend Aristocrat. Between the size of the payout hikes and the long record of increases, Chevron's dividend should continue to profit significantly from passive income investors over time.