Dividend-paying stocks have long attracted the attention of certain types of investors. Because when companies adopt the policy of regularly distributing a portion of their profits, their shareholders are given the opportunity to obtain a regular income stream from their investments without the need to sell shares.
However, investors considering purchasing shares based on these payments must do their homework. Choosing a stock based solely on its payment history, even if it’s impressive or has the highest returns dividend yields, may result in unpleasant surprises.
After doing some research, I found two stocks that investors seeking long-term dividends should definitely consider adding to their portfolios.
Image source: Getty Images.
Most shoppers will be familiar with Aim (NYSE: TGT) aspect retailer Committed to low prices. But as investors, you might be interested to know that the company also shows a strong commitment to its dividend.
The company has paid dividends every year since 1967, when it became publicly traded. Impressively, Target has increased its dividends every year for the last 54 years. This win makes him a member of the Dividend Kings, a small and famous group.
While Target is going through a tough time sales-wise, there’s no doubt about its ability to continue paying dividends. It has a payout ratio of 52%, suggesting it can cover its dividends using its profits with plenty of room to spare.
I also expect its sales to improve again, which will trigger profit growth. Same-store sales (components) fell 1.9% in the fiscal second quarter ended Aug. 2. 1.3 percent of this decrease was due to low traffic in stores. Meanwhile, the average transaction size fell by 0.6% and the rest was made up.
Several factors contributed to Target’s sales decline. First, many consumers are becoming more cautious and are pulling back on spending on discretionary products. Additionally, Target’s differentiated offerings that have historically made it a popular shopping destination have not appealed to enough customers.
Chief Operating Officer Michael Fiddelke will become Target’s CEO early next year. Among other steps, he promised to bring more fashionable products. I like that it addresses this issue head-on and hope its back-to-basics approach will win customers back.
Target also faces boycotts after abandoning its diversity, equity and inclusion initiatives in early 2025. These undoubtedly hurt traffic, but to what extent remains unclear. Although Fiddelke did not directly address the issue, the administration had previously reached out to community leaders to discuss the issue. We hope these discussions will continue, as the target will need to perform a delicate balancing act from here on out.
The stock has performed poorly recently, falling 34% this year. However, this has left it at a much better valuation for those looking to buy the stock, with its P/E ratio at the beginning of 2025 being 10 compared to its current price-to-earnings ratio of 14. Considering the potential for faster sales and earnings growth, today’s level looks like a bargain.
Meanwhile, the long-term share price decline has nearly quintupled Target’s dividend yield, to 4.9%. S&P 500 The average return of the index is 1.1%.
Home Depot (NYSE:HD) It is a popular retail destination for homeowners and professional contractors. It is the largest home improvement retailer, generating approximately $180 billion in annual sales.
It also generates plenty of free cash flow (FCF). In the first half of the fiscal year ending Aug. 3, the company generated FCF of $7.2 billion. That means it had enough left over after capital expenditures to cover the $4.6 billion in dividends it paid in that period.
Management has clearly laid out its capital allocation priorities, and dividends are high on the list. In fact, dividend payments come immediately after investments are made in the business, including growth initiatives.
Although its results vary with the economic cycle, Home Depot has set an impressive dividend record. It has increased its payments every year since 2010. He even kept his payments steady from 2007 to 2009, when the country was going through the difficult years of the Great Recession.
Home Depot has been going through a rough patch lately, but that’s because larger economic forces are at play. The company faces headwinds, including high interest rates, customers’ reluctance to spend on big projects, and homeowners whose budgets are being squeezed by persistent inflation.
Despite all this, Home Depot’s second-quarter comp, excluding currency translations, increased 1.4%. Adjusted diluted earnings per share increased from $4.67 to $4.68.
While management expects modest sales growth of 1% for this year, same-store sales growth will undoubtedly accelerate again at some point. After all, it’s only a matter of time before people start getting involved in larger home projects again, even if it’s out of necessity. It seems that when that time comes, homeowners and contractors will turn to Home Depot with its competitive prices and many locations.
Once payouts begin, you can expect the retailer’s earnings growth to accelerate. This should lead to higher stock prices. While shareholders wait for this change to occur, they can enjoy the peace of mind of collecting Home Depot’s dividends, which yield on average over 2.4% based on current share prices.
Before buying shares in Target, consider:
Motley Fool Stock Advisor The analyst team just determined what they believe to be Top 10 stocks for investors to buy now… and Target wasn’t one of them. The 10 stocks that made the cut could deliver monster returns in the coming years.
Think about when netflix You made this list on December 17, 2004… if you invested $1,000 on the date we recommended, You would have $595,194!* Or when Nvidia You made this list on April 15, 2005… if you invested $1,000 on the date we recommended, You would have $1,153,334!*
Now it is worth noting that Stock Advisor total average return 1.036% — a market-beating performance compared to the S&P 500’s 191%. Don’t miss the latest top 10 list available Stock Advisorand join an investment community created by individual investors, for individual investors.
Lawrence Rothman They have positions in Target. The Motley Fool has positions in and recommends Home Depot and Target. The Motley Fool has a feature disclosure policy.
