3 Passive Income Powerhouses Down Between 9% and 39% to Buy in July

• Oil prices remain at a level that ensures a handsome cash flow and dividend for Devon Energy.

• APA is an exploration and production company that offers a generous high-yield dividend.

• McDonald’s is known around the globe and has an exceptional business model that is built to last.

• 10 stocks we like better than Devon Energy ›

As the calendar turns to the second half of the year, some investors may be looking to boost their passive income streams from dividend-paying stocks at compelling valuations.

Devon Energy (NYSE: DVN), APA (NASDAQ: APA), and McDonald's (NYSE: MCD) are down between 9% and 39% from their 52-week highs at the time of this writing. Here's what makes these dividend stocks stand out in July.

Lee Samaha (Devon Energy): Sentiment toward energy stocks and oil has shifted to negative over the last year or so, whether in terms of investor sentiment or oil company management. A combination of fears over global growth in the light of the tariff conflict and an increase in OPEC production has accentuated the decline in oil stocks over the last year, including the 31% decline in Devon Energy stock.

However, that may not be such a bad thing. It presents value investing opportunities for investors seeking passive income, and Devon Energy is a great example. Its $0.24 quarterly fixed dividend equates to an annual dividend yield of just over 3% at the current price. In addition, it's set to generate bundles of cash even with a price of oil as low as $50 a barrel — management estimates it will generate $1.9 billion in free cash flow in 2025 at that price. That would easily cover the $650 million in cash it needs to pay the fixed dividend.

Finally, Devon is a strong candidate for being one of the independent oil companies that increased hedging during the recent oil price spike. All told, unless the oil price drops considerably, Devon will have the cash flow to continue making $200 million to $300 million in share buybacks per quarter and might even be willing to pay a variable dividend, making Devon Energy an excellent choice for passive income-seeking investors.

Scott Levine (APA): At first glance, the fact that APA stock has plunged 15% year to date is certainly disconcerting — especially considering that the S&P 500 has ripped nearly 7% higher during the same time period. But at second and third glances, you'll find that there's good reason to add APA stock and its 5.1% forward-yielding dividend to your buy list for July.

To consider a position in APA, investors have to recognize the nature of its business as a pure-play exploration and production company. Operating assets in the U.S., U.K., Egypt, and Suriname, APA is strongly impacted by energy prices. Because its business is only one end of the energy value chain, APA can't pull levers in the same way that oil supermajors like Chevron and ExxonMobil can to compensate for declining energy prices. Consequently, the company is extremely sensitive to movements in energy prices. With the price of oil benchmark West Texas Intermediate plunging over the past year, the decline in APA stock is unsurprising.

Addressing the lower energy prices environment, APA is taking steps to reduce expenses and ensure strong free cash flow — and it's achieving success. In its first-quarter 2025 earnings presentation, the company noted that by improving efficiencies and reducing its rig count, it expects a $150 million reduction in development capital and a $50 million reduction in exploration capital. The company's off to a strong start in 2025. In Q1, it generated $126 million in free cash flow compared to $99 million during Q1 2024.

For investors who have the resolve to endure volatility in energy prices — and the comparable dips in APA stock — today's a great time to invest. Hanging on the discount rack, APA stock is trading at 1.6 times operating cash flow, a discount to its five-year average multiple of 2.7.

Daniel Foelber (McDonald's): The fast food giant is a passive income powerhouse that is hiding in plain sight. McDonald's has raised its dividend for 48 consecutive years and consistently generates considerably more free cash flow (FCF) than its dividend — allowing the company to raise its dividend year after year without straining its balance sheet.

McDonald's secret sauce and greatest competitive advantage is its franchise model — whereby McDonald's corporate owns and operates around just 5% of locations. The other 95% or so are franchised.

McDonald's buys the land — which has been an excellent real estate investment over time. Its franchisees pay McDonald's rent and royalties. In exchange, they benefit from the instant global recognition of the McDonald's brand, its impeccable supply chain, marketing efforts, and more.

By operating as a capital-light business model, McDonald's drastically reduces the variance in its results. Even during the pandemic, McDonald's still generates so much FCF that it was nearly enough to cover its dividend.

McDonald's stock has pulled back just under 10% from its all-time high in May — likely because some investors are shifting away from dividend-paying value stocks toward growth stocks. McDonald's has a reasonable valuation at 31.6 times FCF and 24 times forward earnings, but it isn't a dirt-cheap stock. The dividend yield is decent at 2.4% — but there are plenty of higher-yielding names out there for investors looking to really juice their passive income.

McDonald's isn't growing at nearly the rate it used to in the past. Some investors may be concerned that the market is saturated and there are fewer opportunities for McDonald's to expand by opening new locations.

Rather, the company needs to demonstrate it can grow comparable sales (comps) from existing locations. Its mobile app and rewards program have helped. And McDonald's has experimented with different value options and menu items. However, these efforts have yet to yield meaningful bottom-line results.

Despite room for improvement, McDonald's remains a solid blue-chip dividend stock for investors seeking a quality company to purchase in July.

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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apa and Chevron. The Motley Fool has a disclosure policy.

3 Passive Income Powerhouses Down Between 9% and 39% to Buy in July was originally published by The Motley Fool