There's always a time and place for investors who consider themselves go-getters to get out there and go after the latest hot stock. A better bet might be to find a company that will not only provide you with the growth you seek but also pays you for the opportunity to own the stock.
We asked three top Motley Fool contributors to highlight one company income-seeking investors might consider in this go-go market. Read on to find out why investors ought to go and get some shares of Home Depot (NYSE:HD), Qualcomm (NASDAQ:QCOM), and Harley-Davidson (NYSE:HOG).
Improve your yield
Demitri Kalogeropoulos (Home Depot): If you think you missed the chance to benefit from a rebounding housing market, think again. Home Depot's latest earnings results describe a business that appears closer to the beginning of a growth bounce than to the end. Its 12% profit spike was powered by a 6% comparable-store sales gain that left peer Lowe's (NYSE:LOW) and its 2% uptick far behind.
The home-improvement giant stole market share thanks to a big assist from a pro customer who's finding more reasons to shop at Home Depot. That segment splurged on big-ticket items and services last quarter, including flooring and roofing. As a result, rising average spending helped offset a customer traffic growth slowdown.
With healthy momentum like that, it's no wonder management felt confident enough to raise its dividend commitment to 55% of sales from the prior 50% target in late February. Since it isn't growing its store base as aggressively as its smaller rival, Home Depot can afford a larger payout -- Lowe's targets a 35% ratio. The retailer also enjoys a far stronger profit margin, and so it has room to fund bigger dividend increases.
Both Lowe's and Home Depot stand to benefit from growth in the industry over the next few years. Yes, home prices have risen since 2010, in some cases dramatically. However, overall home-improvement spending is still below its 2006 peak. Other metrics, including the elevated age of housing stock and the below-average rate of household formation, imply a bright industry outlook, especially for the industry leader.
Put your chips on a chipmaker
Keith Speights (Qualcomm): Qualcomm probably isn't the kind of company you normally think of when you consider dividend stocks. It's one of the world's biggest chipmakers, making the chips that power many cell phones and other mobile devices. Qualcomm is also a terrific dividend stock, with a current yield of 3.89%.
While that yield is certainly attractive, Qualcomm also claims an impressive track record with its dividends. The company initiated its dividend program in 2003 and has steadily increased its dividend every year since. Fourteen years later, the chipmaker's dividend is now 2,180% higher.
There are some reasons investors aren't big fans of Qualcomm right now, though. For one thing, the stock hasn't performed well in recent years, with only sluggish earnings growth. The U.S. Federal Trade Commission is also investigating the company over allegations of engaging in anticompetitive practices. Perhaps the biggest problem right now, however, is that Qualcomm is in the middle of a bitter legal dispute with Apple (NASDAQ:AAPL) that could result in a lot less revenue in the future.
So while Qualcomm has been and still is a great dividend stock, you'd have to be a real go-getter to buy the stock right now with all of its issues. But I still think it could pay off to put your chips on this chipmaker. After all, Qualcomm's Snapdragon 835 chip is experiencing tremendous demand, and the company's fortunes are rising in China. Perhaps most important, Qualcomm hopes to close its pending acquisition of NXP Semiconductors (NASDAQ:NXPI) later this year.
Hop on a hog
Rich Duprey (Harley-Davidson): There's little doubt that Harley-Davidson is experiencing the downdraft rippling through the power-sports vehicle market. Sales have steadily fallen for several years, and despite hopeful commentary from management about what 2017 looks like, the motorcycle manufacturer might still come up short on its goals. But despite the headwinds, there are a number of very good reasons investors should consider taking a stake in Harley.
First, Harley-Davidson still owns the big bike market. Although rival Polaris Industries (NYSE:PII) has made huge strides into its territory with the resurrection of the Indian Motorcycle nameplate a few years ago, the fact remains that Harley continues to own about half of the market for bikes 601 cubic centimeters and above. It's definitely lost a few percentage points over time, but the playing field hasn't really changed. Polaris quickly vaulted into the No. 2 bike-maker position, but it remains a distant second, with just a single-digit share by most counts. Good for it, but not a threat to Harley-Davidson anytime soon.
Second, the demographics of the typical motorcycle rider are changing: Middle-aged white guys are giving way to more urban riders, and even women. While the decline of Harley's core customer has caused much of its problems, the bike maker still owns the lion's share of the market in all the new demographics.
Third, while much of the rest of the industry has engaged in a lot of discounting to gain or hold on to share, Harley has been able to largely remain above the fray and still hold the line on prices. That's allowed it to keep its profit margin intact despite the sales decline, and when the market turns again, as it probably will sooner or later, Harley will be financially well positioned.
And last, Harley-Davidson's stock is cheap. At 15 times earnings and 12 times next year's estimates, the market has sharply discounted the bike maker's stock. Moreover, Harley-Davidson trades at just 11 times the significant free cash flow it produces, putting it in the bargain-basement bin. With its dividend of $1.46 per share yielding some 2.1% annually, this is a good stock to ride out the bumpy road it's on while waiting for the open road to call it once more.
Demitrios Kalogeropoulos owns shares of Apple. Keith Speights owns shares of Apple. Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, Polaris Industries, and Qualcomm. The Motley Fool recommends Lowe's and NXP Semiconductors. The Motley Fool has a disclosure policy.