Dividend-paying stocks have long appealed to certain types of investors. This is because when companies adopt a policy of regularly distributing a portion of their profits, it allows their shareholders to receive regular income from their investments without having to sell shares.
However, it is imperative that investors who consider buying shares under these payouts do their homework. Picking stocks based solely on their payment history, even if they are impressive or have the highest dividend yields, can lead to unpleasant surprises.
After some research, I found two stocks that long-term dividend investors should definitely consider adding to their portfolios.
Image source: Getty Images.
Many buyers will be familiar with Purpose (NYSE: TGT) as a retailer committed to low prices. But you, as investors, may be interested to know that it has also shown a strong commitment to paying dividends.
The company has paid dividends every year since 1967. became a joint stock company. Impressively, Target has increased its dividend every year for the past 54 years. For this series, she is a member of the small and famous group Dividend Kings.
Even though Target is going through a difficult period for sales, you shouldn’t doubt its ability to pay dividends. It has a payout ratio of 52%, which indicates that it can cover dividends from its profits with plenty of headroom.
I also expect its sales to pick up again, which should lead to earnings growth. Same-store sales fell 1.9% in the fiscal second quarter, which ended Aug. 2. The decrease in store traffic was 1.3 percentage points. Meanwhile, average deal size fell 0.6%, accounting for the rest.
Several factors contributed to Target’s sales decline. One is that many consumers have become more cautious and reduced their spending on select items. Also, Target’s different offerings, which have historically made it a popular shopping destination, have not attracted enough customers.
Chief Operating Officer Michael Fiddelke will become Target’s CEO early next year. Among other moves, he promised to bring more fashionable goods. I love that he’s addressing this issue head on and I hope his approach to the basics will bring customers back.
Target also faces boycotts after 2025 initially abandoned diversity, equity and inclusion initiatives. This has definitely hurt her traffic, although it’s not yet clear how much. While Fiddelke did not address the issue directly, management previously reached out to community leaders to discuss the issue. We expect these discussions to continue, as Target will have a delicate balancing act to perform from here.
The stock has underperformed recently, down 34% this year. But that has made it a much better value for those looking to buy the stock at its current price-to-earnings ratio of 10, compared to a P/E of 14 in 2025. at the beginning Given the potential for faster sales and earnings growth, today’s level looks like a bargain.
Meanwhile, longer-term share price declines pushed Target’s dividend yield to 4.9%, nearly five times S&P 500 the average yield of the index is 1.1%.
Home Depot (NYSE: HD) is a popular retail destination for homeowners and professional contractors. It is the largest home improvement retailer with annual sales of approximately $180 billion.
It also generates a lot of free cash flow (FCF). It earned $7.2 billion in the first half of its fiscal year, which ended Aug. 3. USD FCF. That means it had plenty of cash to cover the $4.6 billion after capital spending. USD of dividends paid during that period.
Management has been clear about its capital allocation priorities, with dividends near the top of the list. In fact, dividends are paid immediately after investment in the business, including growth initiatives.
Although results vary depending on the economic cycle, Home Depot has an impressive dividend record. It has been increasing payments every year since 2010. And even from 2007 to 2009, when the country was going through the tough years of the Great Recession, its payments were stable.
Home Depot has been going through a tough time lately, but that’s because of larger economic forces. The company faces headwinds that include higher interest rates, a reluctance of customers to spend on big projects and homeowners whose budgets have been squeezed by persistent inflation.
Despite all that, Home Depot’s second-quarter revenue, excluding foreign currency translation, rose 1.4%. Adjusted diluted earnings per share increased to $4.68 from $4.67.
While management expects comps to rise 1% year-over-year, its same-store sales growth is sure to pick up again at some point. After all, it’s only a matter of time before people take on larger home projects again, even if out of necessity. When that time comes, homeowners and contractors alike will likely turn to Home Depot for its competitive prices and abundant locations.
As inventory increases, you can expect the retailer’s revenue growth to accelerate. This should lead to higher share prices. While shareholders wait for that change to happen, they can take solace in Home Depot’s dividend, which yields an above-average 2.4% at current stock prices.
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Lawrence Rothman has a position at Target. The Motley Fool has positions in and recommends Home Depot and Target. The Motley Fool has a disclosure policy.
The Best Dividend Stocks to Buy and Hold Forever was originally published by The Motley Fool.
