Dividend stocks rarely make headlines. And in a week, when the sitting Prime Minister prepares to leave and Westminster unveils a modern defense spending plan, this could be their biggest appeal.

Although politicians have discovered that job security is not guaranteed, Tesco (LSE:TSCO) quietly paid its last dividend on June 26. This happens regardless of who measures the curtains in Downing Street.

Passive income

This reliability is the whole point of passive investing. Dividends come whether markets are euphoric or depressed, and reinvestment buys more shares, which in turn generates more dividends.

The combining process is tardy, inconspicuous and deadly effective. A common mistake is to try to speed things up by looking for very high yields.

This can be risky – a 9% payout is often a warning sign of an upcoming cut. A yield of 3-4% growing at a rate of 7% per year is often a better long-term income driver.

Entering Tesco with a dividend yield of 3.4%. Would this be worth considering for income investors looking for stocks to consider buying in July?

What conscientious investors will notice in Tesco

Tesco is the UK’s largest food company and its market share is now at its highest level in over a decade. And the company’s scale is its great advantage.

A larger number of stores and the opportunity to reach more customers give the company purchasing power with suppliers. Smaller rivals just don’t measure up.

The Clubcard program also gives the company better data than its competitors. Think how Metaplatforms knows which ads you click on – but with food.

Aldi’s price matching system makes Tesco competitive with its toughest rivals. And people still come through its doors during recessions, pandemics and so on.

What about the margins?

Retail is known for low margins. This applies especially to food products, where consumer choices are mainly influenced by price and value.

This makes inflation a real challenge. Raising prices to offset cost increases risks discouraging customers who could easily go elsewhere.

One strategy for dealing with this problem is to try to offset higher costs with growth elsewhere. And Tesco has done it very effectively recently.

The combination of 4.3% revenue growth and a £1.45 billion share buyback program boosted earnings per share. And in terms of the buyout, there is still a lot ahead of us.

A chance for a dividend?

Tesco shareholder profits – both dividends and buybacks – are covered by the company’s free cash flow. This is a very positive sign.

At a price of around 459p, an investment of £10,000 would buy around 2,178 shares. On a projected payout, this equates to approximately £340 in dividends per year.

The real reason to buy stocks has nothing to do with inflation, interest rates, or whoever ends up in 10th place. It is based on the company’s key competitive advantages.

These include sustainable scale, reliable cash generation and a management team committed to returning cash to investors. This happened last July and will probably happen next year.

This is exactly what dividend investors expect from stocks. And that’s why now seems to me to be as good a time as any to think about buying.

That being said, it’s not the only name worth considering. As we enter July, I have several growth and income stocks in my sights.

Which profitable companies do we like more than Tesco Plc right now?

One of our Share Advisor analysts has just published a modern stock report that we believe is a must-read for any investor looking to generate potential income.

And the best thing is that you can check it yourself right now completely free of charge!

No jargon. There is no tough sell. Just take a close look at the revenue share we think is worth your time.

Stephen Wright holds no shares in any of the companies mentioned.