There are two main ways to generate returns from stocks -- capital gains and dividends.
Capital gains result from how the market values a company, whereas dividends are paid directly by the company to its shareholders. Ideally, dividend investors want to see a company grow its earnings so that its value increases (capital gains) and it can afford to pay a higher dividend.
Target (TGT +2.84%), Chevron (CVX +0.66%), and Texas Instruments (TXN 0.87%) have been rewarding shareholders with growing dividends for decades. But all three stocks have lost value over the last three years, whereas the S&P 500 (^GSPC 0.16%) is up 66.5%.
By investing $7,500 into each high-yield dividend stock, you can expect to generate over $1,000 in annual dividends. Here's why all three stocks are excellent opportunities for value investors looking to give their passive income stream a jolt in 2026.
Image source: Getty Images.
Target is too cheap to ignore
Target is getting hit hard by pullbacks in consumer spending, especially on discretionary goods. In comparison, Target's peer, Walmart, is capturing market share and appealing to value-seeking shoppers.
As you can see in the following chart, Target is now hovering around a six-year low, as sales have been declining for years, and operating margins remain below pre-pandemic levels.
In addition to macroeconomic challenges, Target has been on a public relations roller coaster due to backlash over its diversity, equity, and inclusion policies. And when Target rolled back those policies, it upset the other side of the political aisle. So in the span of just a few years, Target alienated a good chunk of its customer base.
Target is also dealing with increased shrink, largely due to theft. Shrink is a term retailers use to represent the difference between reported inventory and actual inventory. The more theft, the more missing items, and the more inventory has to be adjusted to make up for the shortfall. Target isn't the only retailer dealing with shrink -- it's a problem at Walmart, Best Buy, and elsewhere, too. But the difference is that Target is already testing investor patience, so any additional challenges are met with less tolerance.
With so much going wrong, you may be wondering why Target is even remotely worth considering. Target is dirt cheap, trading at just 11.6 times forward earnings estimates. It also remains a cash cow, with trailing 12-month diluted earnings per share (EPS) of $8.24 and $6.59 in free cash flow (FCF) per share compared to a dividend of $4.44 per share. To top it all off, Target has raised its dividend for 54 consecutive years and yields 5.4%.
Add it all up, and Target is an ideal value stock for passive income investors to scoop up in December.
NYSE: TGT
Key Data Points
Chevron is a coiled spring for an uptick in oil prices
Chevron and the broader energy sector have produced monster gains over the last five years. However, the bulk of that performance occurred in 2021 and 2022, when oil prices exceeded $100 per barrel. Over the last three or so years, Chevron's stock price and earnings have fallen as margins have been squeezed by lower oil prices.
WTI Crude Oil Spot Price data by YCharts.
Chevron has a sizable refining business and has invested heavily in low-carbon projects, from renewable fuels to carbon capture and storage and hydrogen. But ultimately, the bulk of its earnings are still heavily dependent on higher oil prices.
However, Chevron has made significant investments to boost its profitability through efficiency improvements and lower production costs. In July, Chevron overcame ExxonMobil's efforts to block its acquisition of Hess, which will boost its offshore production and lower its overall breakeven level as it scales production in the high-margin Stabroek Block offshore Guyana.
Even at lower oil prices, Chevron is still generating more than enough FCF and earnings to cover its growing dividend while buying back stock at a breakneck pace. With a 4.6% yield and 38 consecutive years of dividend increases, Chevron stands out as a top energy stock for passive income investors to buy now.
A dividend-paying stalwart in the semiconductor industry
Texas Instruments, commonly known as TI, is a semiconductor giant. You may think that it has increased significantly in recent years and is benefiting from a flurry of industry investment in artificial intelligence (AI). But that is hardly the case, as TI stock is up just 15% from its five-year low.
TI makes analog and embedded semiconductors for six core end markets -- industrial, automotive, personal electronics, enterprise systems, communications equipment, and other. Analog semiconductors convert analog information into electronic signals like measurement devices and speakers, whereas embedded semiconductors connect electronic devices, like wireless connectivity applications.
TI's end markets are cyclical and typically benefit from economic growth. However, they are distinctly different from hyperscalers and chip designers that benefit from investments in data center infrastructure to run AI models. In fact, many of TI's end markets are currently in a slowdown.
TI is an ideal stock for dividend investors seeking passive income who are willing to wait for a cyclical recovery. It boasts a 3.5% dividend yield and has achieved 22 consecutive years of increasing its payout.
