The stock market is up modestly heading into the final quarter of the year. Looking at just the 4% gain through September, you might guess 2020 was a normal period for investors, rather than one marked by an over 30% crash and a subsequent 40% rally. It has been anything but a normal investing year.
One reason to like dividend stocks is that they help protect against that kind of volatility by providing a steady stream of income that you can direct toward automatic share purchases or to cash.
Hopefully we won't see stock indexes move again like they have over the last seven pandemic-influenced months. But owning some shares of PepsiCo (PEP -1.38%), McDonald's (MCD -0.66%), and Home Depot (HD -2.41%) might still help keep your portfolio stable, and growing, through uncertain economic times.
PepsiCo: Drinks and snacks
Pepsi's business has shined through the COVID-19 challenge. Organic sales were merely flat in the peak economic shutdown period in the fiscal second quarter as surging demand for snacks and packaged food offset all those lost beverage-drinking occasions from reduced in-person activities. Rival Coca-Cola, meanwhile, noted a 26% sales slump through early July .
Pepsi just revealed sales that imply further gains against Coke and its snack competitors when it announced 4% overall revenue growth in the fiscal third quarter. That boost reflected market share gains in the food divisions of Frito-Lay and Quaker Foods, plus a quick rebound for the beverage business, which shrank by just 1 %.
CEO Ramon Laguarta and his team now believe Pepsi will grow organic sales by roughly 4% in 2020 to mark only a slight slowdown compared to last year's blockbuster result. That stability is a sure sign that shareholders own a well-diversified, agile, and powerful consumer-focused business.
McDonald's: Food on the go
The next year or so might be a difficult period for the restaurant industry, but McDonald's should still generate strong returns for income investors. Yes, it may take a while before sales completely recover from the pandemic, especially in the breakfast hours as people work and learn from home.
Yet the fast-food giant entered the crisis with some unique assets, including a robust drive-through network and a menu that covers both premium and value-based offerings. Its mobile ordering platform makes it one of the biggest delivery providers in the country.
That positioning should help Mickey D's navigate through the restaurant recession better than rivals like Shake Shack. And income investors will also benefit from its industry-leading profitability and growing dividend even if sales disappoint over the next few quarters.
Home Depot: An improving payout
Home Depot announces its third-quarter earnings results in November, but investors don't have to wait until then before buying the stock. October might be a better time to secure a piece of this dividend giant.
The outlook for the industry is bright, with home sales setting records and with consumers more focused than ever on upgrading their living spaces. These factors helped push Home Depot's comparable-store sales up 23% in Q2. Rival Lowe's saw an even bigger jump.
Dividend investors might prefer Lowe's for its more conservative, and less risky, payout strategy, and for the company's potential to gain ground against Home Depot. But if you're looking to bet on a proven winner, and one that targets returning over 50% of earnings each year to shareholders through dividends, then add Home Depot stock to your watch list today.