Investing in dividend stocks can be very comforting. The passive income you receive might not add up to a big sum at first. But as your portfolio of companies continues to grow and increase dividend payments over time, you can eventually achieve a portfolio that’s paying you enough money to pay monthly bills and other expenses.
The following companies have great prospects, and all are offering above-average dividend yields. Investors could see years of income growth from Home Depot(NYSE: HD), Nike(NYSE: NKE), and Realty Income(NYSE: O). Here’s why three Motley Fool contributors believe these dividend stocks are timely buys.
Jennifer Saibil (Home Depot): If you had invested in Home Depot’s initial public offering (IPO) in 1981, you’d likely be a millionaire today. Just $100 invested at the IPO is worth $2 million today, and that’s before the dividend. With the addition of the dividend, you’d have $3.7 million.
Home Depot has paid a dividend since 1987, and it’s grown 280% over the past 10 years. At the current price, Home Depot’s dividend yields 2.1%.
What makes Home Depot such a compelling stock is that it offers stock gains plus passive income. Despite current, pressured conditions, Home Depot stock is up 30% over the past year, in line with the market. However, it’s a perennial market beater because it’s so reliable for high sales growth and profits.
In the 2023 fiscal third quarter (ended Oct. 27), sales increased 6.6% year over year. Comparable sales were down 1.3%, and earnings per share (EPS) went from $3.81 last year to $3.67 this year. However, that exceeded expectations all around and raised guidance for the full year.
Home Depot is the largest home improvement chain in the world, with 2,300 stores in North America, but it’s still opening new stores. It’s investing in its growth right now and positioning itself for stronger performance when conditions improve. It’s building out some inbound channels to better stock its national warehouses, and it made some recent acquisitions that expand its reach, such as SRS Distribution, a company that services the pro segment.
Home Depot is reliable for a growing stock price and an increasing dividend, and it’s an excellent choice for almost any investor.
John Ballard (Nike): Shares of Nike have taken a big hit this year over weak sales performance. The choppy consumer spending environment has hit some retail brands more than others. Nike’s sales were down 10% year over year in the most recent quarter.
Some of the sales decline was self-inflicted, as management shifts its product mix away from classic styles, such as the Air Force 1, Air Jordan 1, and Dunk. But customer traffic still underperformed management’s expectations in Nike Direct, including its company-operated stores and digital platforms.
For dividend investors, this is a great time to consider buying shares. The stock has a long history of delivering outstanding returns, and the trailing yield is the highest since 2009. Even with sales down this year, the business is still generating over $5 billion in trailing 12-month net profit to fund dividend payments. In the most recent quarter, Nike returned $1.8 billion to shareholders through dividends and share repurchases.
The company can grow for a long time, since it operates in a growing $358 billion industry, according to Statista. Plus, Nike CEO Elliott Hill, who just took over in October, can certainly reenergize the brand and return the business to growth.
With the stock trading at a reasonable valuation and offering its highest yield in 15 years, Nike investors should benefit from a balance of capital appreciation and income for years to come.
Jeremy Bowman (Realty Income): If you’re looking for a dividend stock to keep giving back, it’s hard to find a better choice than Realty Income.
This real estate investment trust (REIT) may not be a household name, but you’ll surely be familiar with its tenants, which include the likes of 7-Eleven and Walgreens.
The company specializes in triple-net leases, which means that its tenants pay for maintenance, insurance, and property taxes. It also favors recession-proof businesses like the convenience stores and drugstores listed above.
That business model makes Realty Income one of the safer REIT stocks out there, and it’s also one of the most reliable dividend payers. First, it’s one of the few companies that pays a dividend on a monthly basis, which is preferable for some investors as it makes it easier to match dividend income with monthly bills.
Realty Income also has a long track record of raising its dividend every quarter — again, something few dividend payers do. In September, it raised the quarterly payout from $0.767 to $0.789, an increase of 2.9%, which was its 108th consecutive quarterly dividend increase. Realty Income now offers an attractive dividend yield of 5.7%.
Finally, as a REIT, the company should also benefit from falling interest rates, which will make it cheaper to borrow money and easier for it to refinance its current debt.
Realty Income’s upside may be more limited than other REITs, but it’s hard to find a better choice if you’re looking for a generous yield, and reliable, steady dividend growth.
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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Nike. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot, Nike, and Realty Income. The Motley Fool has a disclosure policy.
3 Dividend Stocks to Buy for the Gift That Keeps on Giving was originally published by The Motley Fool
Kaitlin Rogers is a writer, editor, and news junkie. She has been working in the media industry for over five years, and her work has appeared in dozens of publications.
Kaitlin graduated from Michigan State University with a bachelor's degree in journalism and political science.
