With the broader indices hovering around record highs, some people may be looking to put new capital to work in out-of-favor companies that offer stable and growing dividends. If you’re in that camp, a good starting point is to review the list of Dividend Kings – companies that have paid and increased their dividends for at least 50 consecutive years.
Coca-cola(NYSE:KO), Goal(NYSE: TGT)And Stanley Black & Decker(NYSE: SWK) have all sold out in recent months. Here’s why these three stocks stand out as attractive buys in December.
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Coke is one of those stocks that rarely goes on sale or drops significantly in a short period of time. Historically, it has offered a premium valuation over the S&P500 due to its stability and consistent dividend growth. It is extremely rare for Coca-Cola to fall by double digits while the index rises by double digits.
^SPX data by YCharts
Coca-Cola hit a record high in September despite slowing growth. So perhaps the sell-off is partly due to valuation simply returning closer to historical levels. But there are also other factors at play.
As you can see from the chart, the consumer staples sector has not recovered from the S&P 500. In fact, it has sold off lately as investors appear to be focusing more on growth stocks and away from value and income.
Frankly, Coca-Cola has some of the worst short-term growth prospects in years. Unit volumes are declining slightly, indicating weakening demand. It is a global company that generates most of its sales and operating income outside the US. Coke’s diversification is generally a good thing. Still, it could be a headwind if the U.S. dollar is strong, as Coca-Cola will have lower revenues once foreign currencies are converted into dollars.
Investors who only look at Coca-Cola’s position in a few months may therefore find few reasons to buy the shares. But a better way to build wealth over time is to identify great companies, buy them at reasonable valuations and hold them during periods of volatility or when they are out of favor.
Coca-Cola’s valuation has fallen to levels below its historical average, and it now trades at a discount to the S&P 500. It also has a dividend yield of 3.1%, which offers a solid passive income opportunity.
Coca-Cola faces a challenging year and will need to lean on the strength of its brands, supply chain and distribution network. But zoom out over a time horizon of at least three to five years, and Coca-Cola stands out as a phenomenal dividend stock to buy now.
Target has recovered somewhat from its 22% one-day decline, which came after it reported third-quarter fiscal 2024 earnings and lowered fourth-quarter guidance. But the stock is still down slightly against its rival over the past year Walmart is up a mind-numbing 88.3%.
Target has had a turbulent few years. Pre-pandemic, Target was building out its e-commerce offering and loyalty program, proving it could hold its own even during a tough time. Amazon-dominated retail environment. Target’s pre-pandemic expansion was instrumental in setting it up for a thriving business during the pandemic, ultimately helping its shares hit an all-time high in November 2021 on the back of its e-commerce and curbside pickup, as well as the rebounding consumers. towards goods over services.
But Target has struggled during this period of inflation. Its product mix is more discretionary than Walmart’s, and the company simply hasn’t been able to demonstrate as much value to consumers. Another major problem with Target is its inability to provide clear guidance to investors. The company’s guidance has been all over the place, which has led to some major setbacks and setbacks in recent years, leading to share price gains and selloffs. Unpredictability isn’t exactly what investors expect when they buy a Dividend King.
Target still has a lot of work to do to regain investor confidence. However, I think the buying case is fairly simple. For all its problems, Target has decent margins and is a very profitable company. The price/earnings ratio and the forward price/earnings ratio are both below the average price/earnings ratio of the past three to ten years – so the share is relatively cheap. Target has also made significant dividend increases in recent years, which, combined with its underperforming share price, has pushed its yield to 3.4%.
Add this all up and Target stands out as an excellent high-yield stock to buy in December.
While Coke and Target are seeing demand decline but are still highly profitable, toolmaker Stanley Black & Decker is in a very different category: a company experiencing a major value turnaround.
In recent years, the company has completely overhauled its cost structure to pay down debt, improve its balance sheet and chart a path to higher margins. The company’s goals are to achieve $2 billion in cost savings by 2025 by simplifying operating margins and reducing business complexity; $300 million to $500 million in strategic investments in innovation, market leadership and a responsive supply chain; and 35% adjusted gross margins by driving innovation and better customer fulfillment rates. If Stanley Black & Decker achieves these goals, it could look like a dirt-cheap stock. But unfortunately, the country has already faced challenges, including loss of profits and a possible delay in the recovery path.
During its third-quarter earnings call on Oct. 29, the company discussed the potential gains it could get from lower interest rates. But with stronger-than-expected economic growth, interest rates could stay higher for longer, further delaying Stanley Black & Decker’s turnaround.
With a yield of 3.9%, Stanley Black & Decker stands out as an intriguing Dividend King to buy for investors who are confident in a recovery in consumer spending and have a long investment horizon in case further delays hold the company back in the short term .
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Amazon, Target, and Walmart. The Motley Fool has a disclosure policy.
Down 12%, 12.5% and 13% in three months, here are three high-yield dividend stocks to buy in December, originally published by The Motley Fool
