Finding dividend-paying stocks with attractive growth prospects can be a challenging task. It requires identifying companies that have sufficient free cash flow (FCF) to support business opportunities and pay dividends. When you find these companies, it’s essential to periodically review them to determine the best course of action for your investment portfolio. While this examination can be done throughout the year, January is an ideal time to do so.
In this article, we will explore two such dividend-paying stocks: Walmart (NYSE: WMT) and Home Depot (NYSE: HD). Both companies have a long history of raising payouts and are expected to continue providing capital appreciation opportunities, making them excellent candidates for current investors to buy more shares.
1. Walmart
Walmart has become a household name with its widespread namesake stores and Sam’s Club stores, serving 255 million customers every week. Its focus on keeping costs very low to keep prices down has clearly attracted shoppers. While this core philosophy hasn’t changed, management has been investing in technology to create a better experience for customers, such as ordering online and picking up in the stores, including same-day delivery in many locations.
People continue to see Walmart as a place to shop and spend money. The core Walmart U.S. segment had a same-store sales (comps) increase of 5.3% in the fiscal third quarter. More than half of the increase was attributable to e-commerce. This covered the period ended on Oct. 31, 2024.
The quarter’s adjusted operating income for the entire company grew 6.2% when excluding foreign currency translation effects. Management expects at least an 8.5% increase in profitability for the entire year.
Walmart initially declared a dividend in 1974 and has raised it annually, making the company a Dividend King. Its FCF of $6.2 billion during the first nine months of the year comfortably covered the $5 billion in dividends.
The company’s strong business hasn’t gone unnoticed by investors, of course. The stock gained over 71% over the past year through Jan. 2, handily beating the S&P 500’s 23%. Walmart shares trade at a price-to-earnings (P/E) ratio of 37, versus 30 for the S&P 500.
However, given the company’s performance and prospects, it seems reasonable that the stock has a higher valuation.
2. Home Depot
Home Depot was founded in the late 1970s and has grown to become the largest home improvement retailer by revenue. The company has more than $150 billion in annual sales.
Its results fluctuate with the economy, as people buy homes and undertake major construction projects when they feel good about their personal financial situation. Recently, Home Depot’s results have been weighed down by larger economic forces, such as elevated interest rates, that made it more expensive to buy a home and finance projects.
Additionally, higher prices for basic items like food and housing made homeowners more reluctant to fund construction. Comps have been dropping, including by 1.3% in its fiscal third quarter, which ended on Oct. 27, 2024. Management expects comps to fall 2.5% for the year.
However, there have been positive developments that should help boost Home Depot’s sales. Existing home sales have reversed declines, increasing 4.8% in November. The Federal Reserve has been cutting short-term rates, affecting rates on home equity loans and lines of credit that are popular to finance construction.
Home Depot has increased dividends every year since 2010. While earnings have been dropping lately, its 60% payout ratio indicates that the payment remains safe.
The shares gained 12.7% over the last year, but they have badly lagged the S&P 500. However, when economic conditions improve, Home Depot remains in a strong position to benefit, which should propel sales and earnings increases.
Home Depot’s shares trade at a P/E of 26, a discount to the S&P 500.
Should You Invest $1,000 in Home Depot Right Now?
Before you buy stock in Home Depot, consider this:
- The Motley Fool Stock Advisor analyst team has identified what they believe are the top dividend stocks for 2024.
- These stocks have a high dividend yield and are expected to grow their dividends over time.
- With a strong track record of delivering value to investors, Home Depot is an attractive option for those looking to double up on their dividend portfolio.
In conclusion, both Walmart and Home Depot offer attractive opportunities for investors who want to double up on their dividend portfolio. While there may be some challenges in the near term due to economic factors, these companies have a strong track record of delivering value to shareholders and are expected to continue doing so in the future.
By investing in these dividend-paying stocks, you can create a steady stream of income that will help you achieve your long-term financial goals. So why not consider adding Walmart and Home Depot to your portfolio today?
