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The Smartest Dividend Stocks You Can Buy Right Now With $400

Investors these days are starting to pay attention to interest rate signals, but not the ones you see on the road. Income-producing stocks may not have the same appeal as they used to, with safer money market funds often yielding better than 5% at the moment, but it wouldn’t surprise anyone if people start bidding up dividend-paying companies as soon as they go short. the forward interest rate starts to fall.

Nasty inflation data is likely to delay the Fed’s plans to cut rates, but if it happens, you’ll find dividend stocks — especially those that historically boost their payouts — more attractive. Even if you have a modest amount of money to work, Costco Wholesale (NASDAQ: COST), Disney (NYSE: DIS)And Cracker Barrel old country stores (NASDAQ: CBRL) are worth investigating. Let’s take a look at why these could be the smartest dividend stocks to buy with your next $400 investment.

1. Costco

You know Costco, even if you’ve never visited one of its warehouse clubs. Costco is a combination of enchanting extremes, but none is more enticing than its low prices and long lines. Good luck finding another retailer or even a supermarket with a gross margin as low as Costco’s 12.6%.

Investors tend to shy away from low-margin stocks, but this is Costco’s appeal. The company barely earns a cut on its merchandise to pass the savings on to its customers, and in return people willingly pay annual membership fees to keep coming back.

Costco is huge. It has generated $248.8 billion in revenue over the past four quarters.

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Comparable store sales are generally holding up in most economic climates, up a solid 7.7% in March, while e-commerce sales rose 28.3%. It’s probably not the first name you think of when you’re looking to upgrade income-producing investments, given its 0.6% yield. But sometimes the best dividend stocks aren’t the ones with the biggest payouts.

Someone surprised by dollar bills falling from above.

Image source: Getty Images.

When the warehouse club operator increased its quarterly dividend rate by 14% last week, it didn’t cause much excitement. Shares are trading lower now, and that’s fair. All the rate hike did was increase the yield from 0.5% to 0.6%.

However, the company tends to announce larger one-time payouts every few years. A special dividend of $15 per share announced late last year means it paid out $18.96 per share last year – a yield of 2.6% – but it will probably be a few more years before another one-off payment takes place.

Costco’s rewards come from its long-term performance. The stock is up 50% in the past year, 102% in the past three years and 227% in the past five years. You won’t find payouts as rich as the capital growth that Costco has been able to consistently deliver, and if you do, it’s likely come at the expense of the stock falling over that period. Even with a new CEO, Costco should remain a steady winner for dividend investors willing to think outside the yield box.

2.Disney

Another household name with low returns that I like is Disney. The media giant suspended its semi-annual payouts as the pandemic sucker punch hit many of its businesses, but the House of Mouse eventually resumed its payouts in November 2023. The company is apparently making up for lost time and has already increased its payout by 50% for the next dividend paid out. will go out this summer.

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Like Costco, Disney’s checks won’t surprise you. With the new rate the return is 0.8%. However, Disney is a stock that has the potential to make big moves in terms of capital growth. The company is cutting costs to the point that it sees Disney+ — the flagship service of its streaming business that collectively posted a $4 billion operating loss in fiscal 2022 and a $2.6 billion deficit in fiscal 2023 — profitable by the end of this year become. .

Gradually you will have a more promising range of theatrical releases in 2024 than the line-up that often fell flat in 2023. The theme parks continue to thrive, and Disney is doubling down on investments to make these shuttered attractions and its growing fleet of cruise ships much more attractive. more of a magnet for tourist dollars.

3. Cracker barrel

If you need a payout the size of a chicken dumpling to get started, consider Cracker Barrel. The chain of rustic restaurants specialized in comfort food with associated gift shops currently yields no less than 8.7%. The company has been able to continue its generous payouts despite poor financial performance and declining share price.

Cracker Barrel probably won’t deliver the kind of capital appreciation that investors can expect from Costco or Disney, but there’s potential turnaround here. The stock is relatively cheap, trading at just 13 times this year’s adjusted earnings estimates.

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The company’s strategy of locating its legacy restaurants off major highways with heavy passenger and tourist traffic makes it more vulnerable to the economy than other casual dining chains. However, if the economy holds up and Cracker Barrel can overcome its cost challenges, this could mean more than just the healthy dividend checks it currently dishes out every quarter.

Should You Invest $1,000 in Costco Wholesale Now?

Consider the following before buying shares in Costco Wholesale:

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Rick Munarriz has positions in Costco Wholesale, Cracker Barrel Old Country Store and Walt Disney. The Motley Fool holds positions in and recommends Costco Wholesale and Walt Disney. The Motley Fool recommends Cracker Barrel Old Country Store. The Motley Fool has a disclosure policy.

The Smartest Dividend Stocks to Buy Right Now with $400 was originally published by The Motley Fool

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