The investing landscape has changed. Rising interest rates have pushed the value of a 10-year Treasury Note to 3.6%, which is more than double the average dividend yield of the S&P 500 (at 1.7%). A higher risk-free rate adds an opportunity cost to the stock market.

The S&P 500 averages around a 10% return over the long term. However, there's a lot of variance involved in that average, including years of massive outperformance and 30%+ gains -- or steep sell-offs like we saw in 2022. The higher the risk-free rate (typically the rate of a treasury bond), the less incentive there is to invest in the stock market. For example, if the risk-free rate was 10%, it would make little sense for investors to be in stocks. 

One way to combat this opportunity cost is to invest in stocks that yield at least as much as a Treasury Note. That way, an investor can expect to get comparable passive income while still being invested in the stock market.

Chevron (CVX 0.09%), Stanley Black & Decker (SWK -0.27%), and Dominion Energy (D -0.06%) each yield over 4%. And although each company is dealing with challenges, all three dividend stocks are worth considering now.

Two people climbing a wind turbine.

Image source: Getty Images.

The best oil major

Chevron has proven itself to be one of the most reliable and diversified oil and gas stocks. Aside from being an integrated major with operations that cover the entire oil and gas value chain, Chevron has kept a tight lid on capital expenditures since the oil and gas crash of 2014 and 2015. Before that, the company was less responsible. Its spending spree on major liquefied natural gas projects looks foolish in hindsight. But the Chevron of today consistently keeps a tight lid on spending and a healthy balance sheet. This allows it to generate tons of free cash flow (FCF) that can be used to pay and raise the dividend, repurchase stock, or reinvest in the business. That being said, investors should monitor Chevron's spending to make sure it doesn't overly invest in production growth that ends up leaving it more vulnerable to a downturn.

But with Brent crude oil prices hovering around $75 a barrel, the market has been selling off energy stocks in favor of other opportunities. And that sell-off presents a buying opportunity for Chevron -- particularly for investors interested in lower-risk oil and gas stocks.

The silver lining of the oil and gas crash of 2020 is that it provided a useful stress test, and Chevron passed it with flying colors. Not only did the company maintain its dividend, but years of prudence proved powerful when it was able to take on debt without putting its financial health in jeopardy.

In oil and gas, enduring a downturn is more important than maximizing profits during a boom. Chevron's balance sheet helped it get through 2020, begin rebounding in late 2020 and 2021, and set the stage for the company's record-high year of profit in 2022. Today, the company is in arguably its best shape in over a decade, with a net debt ratio so low that management believes FCF is better spent on dividend raises and stock buybacks. However, it is worth mentioning that from 2005 to 2013, Chevron had more cash on the books than debt so stockpiling cash on the balance sheet instead of buying back stock is also an option.

While there are plenty of other oil and gas companies that can grow much faster at high oil prices, Chevron has an element of consistency that only a few other companies can match. In its Q4 2022 earnings call, Chevron said that it can support its capital investments and dividend even if Brent crude oil is $50 a barrel -- which provides a sizable margin of safety. 

For that reason, Chevron and its 4% dividend yield is the ideal oil and gas stock for investors who value passive income and stability. 

A low point for Stanley Black & Decker

To say that Stanley Black & Decker's business is struggling would be an understatement. The toolmaker's gross profit and free cash flow have nosedived, while its inventories have skyrocketed. This is not the pattern investors want to see. Management is combating high inventories with price cuts, which should boost cash flow but also keep profit margins low. 

Longer term, the company is implementing a major cost-saving plan designed to lower expenses and restore profit margins. The strategic shift is already proving messy. Just a few days ago, the company issued a press release saying that 277 net jobs are being lost as the company closes its Fort Worth, Texas operations and transfers its South Carolina operations to Tennessee. While moves like this could result in cost savings over time, the process of over hiring and overexpanding and then scaling back is far more wasteful than growing at a more manageable pace.

The stock market hates uncertainty, and there's a lot of it hanging over Stanley Black & Decker right now. However, the stock is hovering around a 10-year low, which could indicate that the bulk of the bad news is already priced in.

What's more, the company is a Dividend King that has paid and raised its dividend for 55 consecutive years -- a track record that only a few dozen other companies can match. With a dividend yield of 4.2%, Stanley Black & Decker is worth a look. 

Dominion Energy's renewable-energy investments are costing a fortune

Dominion Energy stock reached a new 10-year low this month as the regulated electric-utility company continues to face investor pressure due to myriad reasons. The company is retiring fossil fuel assets and investing in a costly $9.8 billion offshore wind program. Known as Coastal Virginia Offshore Wind (CVOW), it's expected to provide enough energy to power 660,000 homes. 

Offshore wind has a higher levelized cost of electricity (LCOE)than a combined cycle natural gas-fired power plant. LCOE is a useful metric for determining the cost of power generation over an asset's useful life by discounting future cash flows and dividing them by the project's start-up and operating costs. Although Dominion is receiving federal and state support for the project, it remains to be seen if it can consistently grow its profits and dividend with a more renewable-energy-focused portfolio.

Dominion finds itself in a similar position to Stanley Black & Decker. It's a well-known large company undergoing a massive strategic shift that comes with a great deal of uncertainty. And like Stanley Black & Decker, Dominion stock is already heavily sold off, which has pushed the dividend yield up to 4.8%.

The biggest risks facing Dominion are delays to its offshore wind project or the project not being as profitable as the company hopes. But if Dominion does get the project in service on time, it could provide a turning point that proves to be a long-term benefit for the company.

As ugly as the situation is for Dominion, the transition toward renewable energy makes a lot of sense, given the utility's proximity to prime offshore wind leases off the coast of Virginia. Given the favorable tax credits available, now is the time to make a big leap forward in the energy transition, even if it means challenges in the short term.

Three buying opportunities for the bold

Even though Chevron, Stanley Black & Decker, and Dominion Energy are all sizable companies, investing in each stock carries more risks than picking up a certificate of deposit. However, Chevron has proven to be a safe stock in a volatile industry by keeping a rock-solid balance sheet and avoiding overinvestment during boom times.

Stanley Black & Decker and Dominion Energy are in "prove it" mode -- meaning investors are likely to remain skeptical until things turn around. But given the sell-off, now seems to be a good time to consider each stock. Alternatively, an investor could monitor each turnaround and only hit the buy button if each company returns to growth.