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3 Dividend Stocks to Buy on Sale

By Howard Smith – Jun 10, 2020 at 6:38AM

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The stock prices of some reliable dividend-paying companies have been hit by the COVID-19 pandemic, and now offer great yields.

One benefit of a falling stock market is the ability to get better yields on dividends paid by high-quality companies. When investors know the underlying business is strong and has good growth prospects, a lucrative dividend yield can sometimes be found from lower stock prices. 

Today's volatile market is reflecting a lot of uncertainty, and has recently gained back much of the initial losses from the effects of the COVID-19 pandemic. But not all share prices have made their way back to pre-pandemic levels. Let's look at two that still sell at cheap prices and sport correspondingly high yields, along with one that has a solid record of dividend growth, making even today's share price a good investment. 

Sale signs in a store

Image source: Getty Images.

Toy sale

Toymaker Hasbro (HAS -3.11%) was affected earlier than most companies by the pandemic, with concerns about supply chains in China, followed by retail closures and consumers concerned about spending. 

The company makes popular toy brands like Transformers, Play-Doh, and Nerf, as well as toys for the Walt Disney (DIS -0.63%) Marvel and Star Wars movies. Disney theme parks that have been closed are starting to reopen, and movies that boost Hasbro toy sales will be released as businesses continue to reopen. Hasbro and Disney just extended an existing multiyear agreement that includes licensing on characters such as Baby Yoda from The Mandalorian, and Marvel's Spider-Man, Black Widow, Iron Man, Captain America, and Black Panther.

The share price has gained an astounding 80% from its mid-March lows, indicating just how much negativity was in the stock. Hasbro is still down more than 20% year to date, though, and its dividend yield is a healthy 3.4%. 

HAS Chart

HAS data by YCharts

Worried about rent

While owners of malls may well see longterm effects, Realty Income Corp. (O -1.24%) is a real estate investment trust (REIT) that focuses on shopping centers with anchors like grocery, pharmacy, or dollar stores that have remained open and even seen boosts in business during the COVID-19 pandemic. 

Its predictable cash flow has been the reason the company consistently pays, and increases, its monthly dividend. It is a Dividend Aristocrat that has increased its dividend 106 times since its 1994 stock exchange listing. 

Concerns over rent payments from tenants drove the share price to five-year lows, before recovering some ground recently as it eased investor fears with business updates. The company reported it has collected 84.2% of contractual rent due in April 2020, and 82% for May. This included 98.2% from investment grade tenants for May. The dividend still yields 4.4% at today's share price. 

Dollar bill folded in shape of an arrow pointing up

Image source: Getty Images.

Dividend grower

Home Depot (HD 0.10%) has remained open as an essential business during the pandemic restrictions, and has benefited from home improvement projects as well as people stocking up. In its first-quarter earnings announcement, the company reported an increase of 7.5% in U.S. comparable store sales. 

The company has been investing in digital channels with the One Home Depot initiative it announced in December 2017. In its most recent conference call, the company said: "We saw our digital businesses accelerate from approximately 30% growth in early March to triple-digit growth by the end of April."

Home Depot has been using its massive cash flow generation to return capital to shareholders by increasing dividends, as the below 10-year chart shows. While the share price has fully recovered from pandemic-related panic, and now sits at its highs, the dividend still yields about 2.35% thanks to the increasing payout. 

HD Dividend Chart

HD Dividend data by YCharts

This year's volatility in the stock market and economy has offered investors opportunities to buy high-quality stocks with impressive dividend yields. As the economy reopens, more visibility has helped equity prices recover. But Hasbro and Realty Income both offer solid yields and are still on sale compared to pre-pandemic levels. Home Depot also still has a respectable yield and has shown that it rewards shareholders with a growing dividend. Investors should feel good about an investment today, and can take more advantage when the shares dip. 

 

Howard Smith owns shares of Hasbro, Home Depot, Realty Income, and Walt Disney and has the following options: long January 2021 $120 calls on Home Depot, long January 2021 $80 calls on Walt Disney, short July 2020 $115 calls on Walt Disney, and short September 2020 $215 calls on Home Depot. The Motley Fool owns shares of and recommends Hasbro, Home Depot, and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney, long January 2021 $120 calls on Home Depot, short January 2021 $210 calls on Home Depot, and short July 2020 $115 calls on Walt Disney. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Home Depot Stock Quote
Home Depot
HD
$289.85 (0.10%) $0.29
Hasbro Stock Quote
Hasbro
HAS
$68.29 (-3.11%) $-2.19
Realty Income Stock Quote
Realty Income
O
$59.52 (-1.24%) $0.75
Walt Disney Stock Quote
Walt Disney
DIS
$100.80 (-0.63%) $0.64

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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