Dividend stocks are near the top of many investor shopping lists right now. With stocks near all-time highs and sporting a 24% gain year to date (as measured by the S&P 500 index as of this writing), the promise of dividend yield could be a safe haven in case of a market pullback -- or even worse in the case of a recession.
Over the long haul, though, dividend-paying stocks are a solid bet. Investing in well-established businesses that have enough cash to reward shareholders, all the while continuing to invest in growth, has been a winning strategy for decades. Three that are worth a look this month are Texas Roadhouse (NASDAQ:TXRH), Home Depot (NYSE:HD), and Texas Instruments (NASDAQ:TXN).
1. Lone Star State cooking up generous dividend portions
Over the summer months, I posited that the sell-off in steakhouse chain Texas Roadhouse was too far on the side of well done. Labor cost increases -- driven by big minimum-wage hikes in many states -- have weighed down the bottom line. As a result, the stock was down as much as a third from the all-time highs set over the summer of 2018.
Some of the labor cost headwinds have begun to subside, though, and Texas Roadhouse rebounded nicely after a solid Q3 2019 report -- which included yet another increase in comparable sales at existing stores, this time up 4.4% at company-operated stores and 3.2% at franchises. Earnings per share also surged 29% higher from the year-ago period.
All of that is fine, but I think one compelling reason to own Texas Roadhouse is its propensity for increasing its dividend payout. Shares currently yield a modest 2.1% a year, but the quarterly $0.30-per-share paycheck is double what the company doled out five years ago. There's a good chance those checks will keep getting bigger. In the hypercompetitive restaurant industry, the management team is all about slow and steady expansion -- a strategy that has built Texas Roadhouse into a more-than-600-location-strong operation (with another 30 on the way in 2020) that has consistently churned out higher sales at existing stores every quarter for years.
Texas Roadhouse has found a winning recipe in focusing on rural America and offering a value-oriented menu, and the outlook remains positive. With shares still down sharply from their high-water mark but the restaurant chain notching improving profit margins again, now looks like the time to make a buy of this restaurant dividend play.
2. A home-improvement staple that pays the bills, too
Investors weren't exactly thrilled with Home Depot's Q3 2019 scorecard. The stock has tumbled nearly 10% from all-time highs since the report in mid-November after putting up a year-over-year sales increase of 3.5%. The company downgraded full-year expectations, saying that sales should be 1.8% higher than 2018, and comps at existing stores will grow only 3.5% versus the 4% expected before. Earnings-per-share growth of 3.1% did at least remain unchanged.
Nevertheless, Home Depot remains one of the best ways to bet on a stable and steadily rising real estate industry. More than just the leader in home improvement, this retailer continues to be a best-in-class play in e-commerce as well. Online sales grew 22% in Q3 compared to a year ago as the DIY enabler continued to stitch together its internet store experience with its physical stores. And the company's investments in its digital systems working behind the scenes -- dubbed One Home Depot -- are ongoing, though they are taking longer to implement than originally thought.
It all adds up to a steadily growing business that is returning cash to shareholders. The company has been paying a dividend for more than 30 years straight, and the current payout yields 2.5% a year. Best yet, though, is that it also has a long history of growing that dividend. A 32% pay raise was made at the beginning of 2019, and Home Depot has increased the quarterly amount every year since initiation except for 2008 to 2009 during the financial crisis.
There's a good chance investors will be rewarded again at the start of the new year with another raise. With the stock down off its peak, December looks like the time to back the truck up and buy for the long haul.
3. A bellwether in the chip industry on sale
Time for another old reliable off its game at the moment. Texas Instruments surprised many on Wall Street with its third-quarter report, notching worse-than-expected results. Revenues tumbled 11% year over year, and earnings per share were down 6%. The blame lies with the cyclical slump occurring right now in the industrial and automotive sectors, exacerbated by the U.S.-China trade war. As a result, the stock has dropped more than 10% from all-time highs.
That's not to say it's been a bad year for owners of the massive and well-diversified chipmaker, though. Making and selling hardware components has always been a cyclical business, and eventually, TI's slump will give way to renewed demand. Thus, even after the recent drubbing it's taken, shares are still up 26% in 2019 with just a month to go. Management reaffirmed all will be fine, restating its confidence in its industrial focus over the long term during the Q3 earnings call.
In the meantime, investors get treated to a dividend currently yielding 3%. Like our other two subjects, Texas Instruments has been doling out cash for a long time (since 1962) and has raised its payout for 15 years straight. Over that stretch of time, the company has also reduced its share count via stock repurchases by 45%, thereby boosting earnings growth. The tech stock also has a stated agenda to return all of its free cash flow (money left after basic operating and capital expenses are paid) to shareholders via its dividend and share buybacks. That's a generous sum of money, as over the last 12 months, TI's free cash flow has been running at 41% of revenue.
Put simply, any pullback in Texas Instruments stock is an opportunity to start eyeing a buy before the investor mood starts to thaw. This high-quality chip manufacturer pays one of the best yields in its industry and isn't going anywhere anytime soon.