Building Wealth Through Dividend Stocks
The stock market can be an excellent tool for compounding wealth by buying shares in quality businesses and holding those shares over the long term. Companies or exchange-traded funds (ETFs) that pay quarterly dividends offer investors a way to book a cash return without having to sell stock. Dividends can be a great tool if passive income is part of your financial plan.
Three Strong Dividend Options
Investing $27,000 into equal parts of Chevron (CVX 1.87%), Coca-Cola (KO -0.05%), and the Schwab U.S. Dividend Equity ETF (SCHD 0.18%) should help you generate at least $1,000 in annual dividend income. Here's why these two dividend stocks and this ETF stand out as great buys now.
Chevron: A High-Yield Stock for Conservative Investors
The energy company's mix of upstream and downstream assets (which helps diversify its earnings away from a reliance on the price of oil), rock-solid balance sheet, and excellent free cash flow generation make it a passive income-seeking investor favorite. Its recent completion of the acquisition of Hess helps derisk the stock and adds valuable assets to its arsenal.
In addition, Chevron's cash flow is set to increase significantly in the coming years, giving management plenty of latitude to increase the dividend or allocate capital to share buybacks. For example, management believes the assets acquired in the Hess acquisition will add $2.5 billion to free cash flow (FCF) by 2026. That figure is on top of the addition of $10 billion in increased FCF coming from a ramp in production from assets in Kazakhstan, the Gulf of Mexico, and the Permian Basin, as well as from other global assets.
All told, management believes, based on assumptions for energy prices based on current prices, that by 2026, it will generate an additional $12.5 billion in FCF on top of the $15 billion generated in 2024. Wall Street analysts are more conservative, and the consensus estimate calls for $24 billion in 2026 and then $28 billion in FCF in 2027.
Whether the target is hit in 2026 or 2027, Chevron's FCF will more than adequately cover the current payout of $11.7 billion and allow ample room for buybacks to boost existing shareholders' claim on future cash flows. Consequently, Chevron is a highly attractive stock for income investors.
Coca-Cola: Continues to Shine Amid a Challenging Operating Environment
In the short term, stock prices can move for reasons that have little to do with the long-term investment thesis. That seems to be the case with Coca-Cola right now. Shares of the beverage behemoth have been falling even as the S&P 500 (^GSPC 0.30%) has climbed steadily in recent months. Aside from a big move higher after its February earnings release, Coca-Cola's stock price has moved very similarly to the broader consumer staples sector -- which has been one of the worst-performing sectors in 2025.
The consumer staples sector isn't as interesting when mega-cap growth stocks like the "Ten Titans" are making all-time highs. What's more, a lot of consumer-facing companies (staples and discretionary) are under pressure due to relatively high interest rates and cost-of-living inflation.
Coca-Cola isn't immune from these challenges, but it is doing a much better job than its peers. Its key advantages include its elite supply chain, network of bottling partners, marketing and brand power, and a diversified lineup of beverages that increasingly relies less on sugary soda and more on low- or no-sugar soda, tea, coffee, juice, energy drinks, and sparkling water. In recent earnings calls, it's the beverages outside of classic Coca-Cola, like Coca-Cola Zero Sugar and Diet Coke, that have delivered volume growth. The company is even planning to transition Trademark Coca-Cola in the U.S. from high-fructose corn syrup to cane sugar later this year in response to the Trump administration's "Make America Healthy Again" initiative.
Despite industry challenges and changing consumer preferences, Coca-Cola is still on track to modestly grow non-generally accepted accounting principles (non-GAAP) earnings per share (EPS) by 3% year over year to $2.97. However, currency-neutral non-GAAP EPS is expected to grow 8%. Since Coca-Cola sells more products outside the U.S. than domestically, it is highly sensitive to currency exchange rates -- which are currently unfavorable. The non-GAAP figure presents a better reading on how the business is performing without including a factor totally out of its control.
With a 3% dividend yield and 63 consecutive years of boosting its payout, Coke stands out as a reliable high-yield dividend stock to buy now.
Amplifying Your Passive Income Stream: The Schwab U.S. Dividend Equity ETF
For some, investing is rather simple. They do their due diligence, click the buy button, and move on to the next potential stock purchase. Others, however, are hindered by analysis paralysis. They find the vast quantity of potential stock picks and their related data points overwhelming, and, as a result, they balk at clicking the buy button. For these folks -- who also have an interest in collecting dividends -- an ETF like the Schwab U.S. Dividend Equity ETF with its 3.7% distribution yield is a great choice.
Loaded with leading dividend-paying stocks, the Schwab U.S. Dividend Equity ETF has the greatest exposure to energy stocks. This shouldn't be all that surprising, considering the large number of oil and gas companies that pay dividends. Oil giants Chevron and ConocoPhillips are the two largest holdings in the ETF, with weightings of 4.4% and 4.3%, respectively. Consumer staples, at an 18.8% weighting, and healthcare, at a 15.5% weighting, make up the next two largest sectors. In total, the three largest represented sectors account for more than 50% of the weighting in the Schwab U.S. Dividend Equity ETF.
The Schwab U.S. Dividend Equity ETF makes distributions on a quarterly basis, and it's not as if investors have to fear that they'll pay an arm and a leg in management fees to hold the ETF in their portfolio. With a 0.06% total expense ratio, the Schwab U.S. Dividend Equity ETF is a low-cost opportunity for big passive income.
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