Investors often gravitate toward super-safe dividend stocks to earn passive income and limit market volatility. But sometimes even boring, boring companies can crush the market.
Do you miss the morning spoon? Wake up with Breakfast news in your inbox every market day. Register for free »
In the last six months (from May 29 to November 29) Walmart(NYSE:WMT) has risen no less than 42.5%, Clorox(NYSE: CLX) is up 30.4%, and Kenvue(NYSE: KVUE) has increased by 27.6%. Here’s what’s driving all three stocks higher and why they have what it takes to keep raising their dividends in the coming years.
Image source: Getty Images.
With discount retailers such as Dollar general And Dollar tree hovers around the 52-week lows and Goal With a drop of more than 22% one day after its latest earnings report, you might think Walmart stock would be in the bargain bin. But Walmart is down 72% so far.
When an established retailer like Walmart wins a large amount of money in a short period of time, it’s usually because the company does something completely unexpected. Walmart has threaded the seemingly impossible needle of communicating everyday value to consumers while attracting higher-income consumers.
Last quarter, Walmart said its U.S. operations achieved comparable sales growth of 5.3%, with notable market share gains in grocery and general merchandise. During the quarter, approximately 75% of market share gains at Walmart US came from households earning more than $100,000.
So by delivering everyday value, Walmart has drawn consumers to its durable goods at a time when many retailers are struggling. It’s not just the prices where Walmart excels. Walmart’s services such as Walmart+ contactless delivery service, Walmart Marketplace (business-to-business e-commerce tools) and Walmart Connect (tools for sellers) are all booming.
To top it all off, Walmart uses artificial intelligence and machine learning to gain customer insights and improve the shopping experience, digital offerings and internal processes.
Walmart is in a league of its own, but its stock has become significantly more expensive and its yield has fallen to just 1%. However, Walmart is a dividend king with 51 consecutive years of dividend increases. In February, Walmart increased its dividend by 9%, and I expect a double-digit percentage increase next February.
Add this all up and Walmart could still be worth a look for investors who don’t mind lower returns.
With 40 consecutive years of dividend increases and a 2.9% yield, Clorox immediately stands out as a passive income powerhouse. But unlike Walmart, Clorox isn’t at the top, far from it at this point.
On October 30, Clorox reported first-quarter fiscal 2025 results. The company raised its full-year 2025 earnings guidance but reaffirmed organic sales growth of just 3% to 5%. Clorox continues to spend a ton on advertising, which hurt its profits last quarter.
Given the challenges, investors may wonder why the stock hit an all-time high. The simple answer is that Wall Street cares more about where a company is going than where it has been. And there are plenty of reasons to believe Clorox is heading in the right direction.
The past few years have been a mess for Clorox. There was the pandemic, which was initially a boon for Clorox as customers flocked to cleaning products. But Clorox overestimated demand trends, believing there would be a continued shift in buyer behavior toward increased hygiene and cleaning. That left Clorox overloaded when pandemic restrictions were eased.
And to make matters worse, Clorox was hit by a cyber attack in 2023. First quarter 2024 revenue fell 20% and diluted earnings per share fell 75%. So given all these challenges, FY 2025 is really the first “normal year” we’ve seen from Clorox in some time.
It’s also worth noting that Clorox’s stock price is up just 12.8% over the past five years. So part of the recent surge could be the market catching up to Clorox returning to growth.
Clorox still has a ways to go before it returns to its high-margin form. However, the stock could still be worth buying for patient investors looking for higher-yielding options in the consumer staples sector.
In August 2023, Johnson & Johnson spun off its low-growth consumer health division so it could focus on the pharmaceutical and medical device business segments. The resulting company, Kenvue, is named after “ken” – meaning knowledge – and “vue” – meaning sight – to demonstrate the company’s insight into personal health solutions.
The spin-off provided more insight into the performance of older brands such as Aveeno, Band-Aid, Listerine, Neutrogena and Tylenol. As is the case with most spinoffs, the market took time to adapt to Kenvue. Even after the recent run-up, Kenvue is down 10.5% since inception, following an initial sell-off in late 2023, followed by a further decline this past summer.
Kenvue is far from a high-octane growth machine. But it’s an ultra-stable company that should be able to grow its dividend steadily over time. Kenvue is technically a Dividend King because it inherited J&J’s status. But Kenvue’s recent dividend increase was only 2.5%. Kenvue needs to see bigger pay increases to be considered a passive income powerhouse. But the good news is that Kenvue already has a significant yield of 3.4% and a reasonable price-to-earnings ratio of 21.1.
Risk-averse investors who focus more on capital preservation than capital growth might want to take a closer look at this high-yield value stock.
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:
Nvidia:If you had invested $1,000 when we doubled in 2009,you would have $363,671!*
Apple: If you had invested $1,000 when we doubled in 2008, you would have $45,954!*
Netflix: If you had invested $1,000 when we doubled in 2004, you would have $486,533!*
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 December 2, 2024
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Kenvue, Target, and Walmart. The Motley Fool recommends Johnson & Johnson and recommends the following options: Long January 2026 $13 calls on Kenvue. The Motley Fool has a disclosure policy.
Like passive income? Then you’ll love these 3 super-safe dividend stocks that are up between 28% and 42% in 6 months. was originally published by The Motley Fool
