The stock market will occasionally experience periods of volatility, but holding quality dividend stocks that regularly deposit extra money into your account can ease these tough periods.
Now is a great time to get started with dividend investing, as there are several companies you already know that pay returns that are significantly higher than S&P500 (SNPINDEX: ^GSPC) on average about 1.27%.
Here’s why these three Motley Fool contributors believe Home Depot (NYSE:HD), Goal (NYSE: TGT)And Coca-cola (NYSE:KO) can afford a passive income for life.
A resilient income share
John Ballard (home depot): Shares of Home Depot have risen close to new highs this year despite weak comparable store sales (comps). Higher interest rates have put pressure on demand for housing developments, but this blue chip stock has been paying a consistent dividend for years and has huge growth potential.
Home Depot has handled the weak sales environment well. Despite a 3% year-over-year decline in comps last quarter, adjusted earnings fell only slightly. CEO Ted Decker said: “The long-term underlying fundamentals supporting home improvement demand are strong.”
The leading home improvement retailer operates in an economy with a total net worth of households and nonprofits estimated at $164 trillion as of the second quarter, according to the Federal Reserve. The company estimates this will open a $1 trillion market for home improvement projects, which is a big opportunity compared to Home Depot’s lagging sales of $152 billion.
Wall Street understands this favorable long-term environment, which is why the stock is performing well, even though the company is having a weak revenue year. This makes Home Depot’s above-average dividend yield all the more attractive.
The company has paid out dividends every quarter for more than 37 years. The current quarterly payment is $2.25 per share. It normally increases the dividend every February, when it recently increased the payout by 7%, bringing the forward yield to 2.16%.
Home Depot benefits from favorable long-term trends in household wealth, which should leave investors with passive income for the rest of their lives.
An overlooked dividend king
Jeremy Bowman (goal): Target hasn’t gotten much love on Wall Street lately, and that’s understandable. It underperforms its peers across multiple categories Walmart And Costco Wholesaleand has struggled with inventory issues and theft. However, Target finally seems ready to turn things around.
The company posted strong margin expansion in its most recent earnings report, and falling interest rates should boost consumer spending at its stores. Compared to Walmart and Costco, Target derives a greater share of its revenue from discretionary goods such as clothing, electronics, toys and household goods, meaning it is more sensitive to consumer spending.
Inflation took a bite out of profits in 2022 and 2023, but wages have been growing faster than prices for more than a year now. The balance should eventually tip in Target’s favor, possibly as soon as around the holidays, as the National Retail Federation now expects holiday sales to approach $1 trillion this year, up somewhere between 2.5% and 3.5% compared to a year ago.
This trend, lower inflation and falling interest rates should all help Target achieve steady growth through the holidays and into 2025.
As a dividend payer, the company has a track record in the retail industry that is virtually unparalleled. It’s a Dividend King, having increased its payout for 53 years in a row, and now offers a 3% yield at an affordable price-to-earnings ratio of 15.4.
While Target’s recent dividend increases have been disappointing, it won’t take much for them to accelerate from this point. Investors can enjoy a 3% yield and take advantage of the discounted price and coming tailwinds by purchasing the stock today.
The classic dividend king
Jennifer Saibil (Coca-Cola): Coca-Cola is the classic Dividend King, very strong when it comes to dividend payments and growth. The company has been raising its payouts consecutively for the past 62 years, through thick and thin, and the yield is typically around 3% – more than double the S&P 500 average.
The stock hasn’t been a reliable market beater over the years, even when you add in the dividend. Still, its stable, growing, high-yielding dividend has made it an attractive option for passive income investors, and it’s as safe a stock as any for portfolio protection.
But things are changing and Coca-Cola is doing well. The company was restructured early in the pandemic under CEO James Quincey, who was relatively new at the time. It’s leaner and more efficient, focusing on both the key legacy brands and newer, global names. The economy has performed strongly in recent years, recovering from the lows of the pandemic and reporting robust growth and profitability.
Coca-Cola has seen sales growth and expanding margins despite inflation, counting on its global distribution system and beverage innovation to meet changing consumer needs. In the second quarter, revenue increased 3% year-over-year, but organic revenue increased 15%. Operating margin was 21.3%, compared to 20.1% last year.
This bodes well. Now that inflation appears to be subsiding, more people will start buying their favorite branded drinks again. Coca-Cola continues to see varied growth opportunities, between growing the organic industry, capturing market share in developing regions and beverage innovation. The company carefully acquires new brands that it can seamlessly add to its distribution system for increased revenue with better cost efficiency, a model for long-term growth.
Coke shares are up almost 20% this year, and conversely the dividend yield is on the low side at 2.7%. That should remain around average and reward investors for the foreseeable future, and they can benefit from share price gains as Coca-Cola drives growth and innovation.
Don’t miss this second chance at a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you would like to hear this.
On rare occasions, our expert team of analysts provides a “Double Down” Stocks recommendation for companies they think are about to pop. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
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Amazon: If you had invested $1,000 when we doubled in 2010, you would have $21,121!*
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Apple: If you had invested $1,000 when we doubled in 2008, you would have $43,917!*
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Netflix: If you had invested $1,000 when we doubled in 2004, you would have $370,844!*
We’re currently issuing ‘Double Down’ warnings for three incredible companies, and another opportunity like this may not happen anytime soon.
See 3 “Double Down” Stocks »
*Stock Advisor returns October 14, 2024
Jennifer Saibil has no positions in any of the stocks mentioned. Jeremy Bowman has positions in Target. John Ballard has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Costco Wholesale, Home Depot, Target and Walmart. The Motley Fool has a disclosure policy.
3 Powerhouse Dividend Stocks for a Lifetime of Passive Income was originally published by The Motley Fool
