There Are Only a Handful of Dow Stocks That Yield Over 3%. Here's My Top Pick to Buy Before September Ends.
Key Points
Chevron is still an oil giant, but its Microsoft power deal could give investors a more predictable source of cash flow.
At around a 3.4% yield, Chevron offers income that stands out among the Dow’s non-telecom companies.
New projects in power, Angola, and base oils suggest Chevron is quietly building a business that goes beyond selling crude.
The Dow Jones Industrial Average (DJINDICES: ^DJI) may be packed with some of America's biggest and most recognizable companies, but investors looking for serious income will find that the index itself is surprisingly stingy, with a yield of around 1.5% as rising share prices have outpaced dividend growth.
This leaves only a handful of Dow stocks offering yields near 3% or higher -- and among them, Chevron (NYSE: CVX) stands out to me for a reason that goes well beyond where oil prices are headed.
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Chevron is quietly becoming a power company
In June, Chevron's wholly owned subsidiary Energy Forge One signed a 20-year power purchase agreement with Microsoft (NASDAQ: MSFT) to supply electricity to a data center campus in Reeves County, Texas. A power purchase agreement is simply a long-term contract to buy electricity at agreed terms. The development, called Project Kilby, is designed to reach roughly 2.67 gigawatts of capacity, enough to power more than 530,000 Texas homes, according to Bloomberg.
The development is being built in phases, with most generation coming from turbines supplied by GE Vernova (NYSE: GEV) and additional capacity from Solar Turbines, a Caterpillar Inc. (NYSE: CAT) subsidiary. Chevron will feed the plant natural gas from its own Permian Basin wells, and the facility sits next to the data center rather than plugging into the public grid.
Image source: Getty Images.
Here is why that structure matters to a dividend investor. Oil and gas earnings swing with commodity prices and geopolitical events, as we saw earlier this year with the Strait of Hormuz. These are the reasons energy investments and dividends tend to make people nervous. But when looking at this specific contract with Microsoft, I like how it functions as a two-decade take-or-pay contract with one of the most credit-worthy/credit-worthiness buyers on earth, more like a utility bill than a barrel of crude.
When looking at a dividend investment, you don't want to invest in a company that's reliant on political headlines or gas swings. This contract really firms up your investment. Jeff Gustavson, president of Chevron New Energies, has told reporters the company is scouting similar projects in the Midwest, Gulf Coast, Rockies, and Utah. If even a couple of those land, Chevron's cash flow gets a floor under it that the market has not yet priced as a separate business.
The dividend math behind Chevron's 3.4% yield
Chevron raised its quarterly payout by 4% in January to $1.78 per share, marking its 39th straight annual increase, and has declared the same amount in each quarter since. At roughly $210 a share, that annualized $7.12 works out to about a 3.4% yield -- more than double the Dow's average, and the highest among the index's non-telecom names. The company returned $27.1 billion to shareholders in 2025 through dividends, buybacks, and Hess share purchases.
Chevron's other September signals
Two smaller items make Chevron a solid investment this month. In August, Chevron confirmed an oil and gas condensate discovery offshore Angola that it plans to assess as a tie-back to nearby facilities it already owns -- meaning new production without building a new platform. That same month, it expanded its North American base oils distribution network through agreements with HF Sinclair (NYSE: DINO), a reminder that a chunk of Chevron's business is selling refined lubricants, not just pumping crude.
Chevron also plans to invest $7 billion in Venezuela over the next five years to more than double production to 600,000 barrels a day. There will be nuance to this investment, but if it all pays off, we could see even better gas margins.
What to do before September ends
Chevron paid its dividend on Sept. 10 to holders of record as of Aug. 19, so that particular check has already been assigned. The reason to move this month is not the calendar; it's that a final investment decision on Kilby is coming, and I think the market has yet to treat Chevron as anything but an oil stock. I'd buy it as a core income holding, expect the yield to do most of the work for the next two years, and see if the power business will be the part nobody has priced in.
Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Caterpillar, Chevron, GE Vernova, and Microsoft. The Motley Fool has a disclosure policy.