My 3 Favorite Dividend Stocks to Buy in October

As the stock market remains near record highs, primarily because of a possible artificial intelligence (AI) bubble, going defensive can keep you in the market while at the same time lowering your exposure to possible turbulence ahead.

For this "defensive pivot," consider focusing on blue chip dividend stocks -- players that offer a mix of above-average yields, dividend growth track records, and potential upside from company-specific catalysts. Cycling into such names today could appear very shrewd in hindsight.

Among the stocks in this category, Chevron (NYSE: CVX), McDonald's (NYSE: MCD), and PepsiCo (NASDAQ: PEP) are three favorites of mine heading into October.

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Collect Chevron's 3.5% yield while you wait for its cash flow liftoff

At the current share price, Chevron has a forward dividend yield of around 3.5%. Management remains committed to both paying down debt and returning capital to shareholders, as evidenced by its nearly 40-year track record of consecutive annual dividend hikes.

For instance, during Q2, in addition to paying out dividends totaling $3.5 billion, Chevron repurchased over $3.1 billion in its own shares. And it paid down over $8 billion in outstanding debt. It's also implementing permanent cost reductions.

Together, management anticipates these efforts will produce 10% annualized cash flow growth through 2030. If it gets the results it expects, the impacts on Chevron's share price and profitability, not to mention its ability to use its increasing cash flow to buy back stock or further reduce debt, could be tremendous.

McDonald's has become an overlooked Dividend King

McDonald's currently has a forward dividend yield of 3.3%. The venerable fast-food maker also hit a major dividend milestone this year. Implementing its 50th annual stock increase in a row, McDonald's is now officially a Dividend King. Yet investors have soured on McDonald's in recent months, mostly due to its weak domestic same-store sales growth.

Last quarter, same-store sales increased by just 0.8%. However, based on McDonald's nearly 24% price drop since January, investors have arguably overreacted to those figures.

International sales growth remains solid, and analysts forecast that the company will report mid-single-digit earnings growth over the next two years. With the stock trading at just 18 times expected forward earnings now, any small improvements with the company's domestic business could lead to a serious share price rebound, mostly on multiple expansion.

Scoop up PepsiCo while it's out of favor

PepsiCo is another Dividend King that has fallen out of favor due to overly pessimistic sentiment about the company's recent fiscal results. Its U.S. snack business has been suffering as the company has been passing rising commodity prices on to consumers.

Still, concerns about PepsiCo's long-term prospects appear overblown. Its valuation has sunk to just 15 times forward earnings, well below Coca-Cola's forward multiple of 25, despite this food and beverage company continuing to plug along with mid-single-digit earnings growth.

Due to its low valuation and forward dividend yield of nearly 4.7%, I consider it one of the best high-yield dividend stocks to buy. As with McDonald's, any small improvement in investor sentiment could have a tremendous impact on valuation and share price performance.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends the following options: long January 2028 $320 calls on McDonald's and short January 2028 $340 calls on McDonald's. The Motley Fool has a disclosure policy.