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3 Rising Dividends You'll Want in Your Portfolio

By Demitri Kalogeropoulos - May 27, 2021 at 6:21AM

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Now's the perfect time to buy more of these attractive stocks.

Stock price appreciation is a core goal of investing, but there's just as much to love about dividend income. Steadily rising payouts can amplify your returns, especially if you choose to reinvest the dividends. But you've also got flexibility to switch to cash payouts at any time.

The trick is picking quality businesses with attractive growth and income profiles. So let's take a closer look at three such stocks: Domino's Pizza (DPZ 1.79%), Home Depot (HD 0.74%), and eBay (EBAY 0.70%).

A couple holding cash in their hands.

Image source: Getty Images.

Domino's delivers cash

Pizza is one of the most widely enjoyed foods on the planet, and most cities feature dozens of choices when you're in the mood for a slice. Yet Domino's has a knack for rising above that intense competition. The delivery leader accounted for 37% of the U.S. industry last year, up from 28% five years ago.

That success has helped sales soar in the past decade even as every other major fast-food company ramped up its presence in home delivery. Revenue in 2020 hit $4.1 billion compared to $3.6 billion in 2019. Sales growth didn't slow in the first quarter, either, jumping 13%.

Domino's has historically focused most of its earnings toward reinvesting in the business. But lately management is rewarding shareholders with more cash. It boosted the dividend payout by 21% for fiscal 2021 and approved a new play to buy back $1 billion of additional stock. That cash flow should support continued strong returns for owners of this unusually efficient business.

eBay bids up its returns

eBay's sales volume puts it near the top of the sales list for e-commerce, right along with Amazon and Walmart. But its middleman selling approach gives it far lower costs to worry about than these more-integrated peers.

EBAY Operating Margin (TTM) Chart

EBAY Operating Margin (TTM) data by YCharts. TTM = trailing 12 months.

The main payoff is profitability, with operating margin a full 20 percentage points above most rivals. eBay also enjoys industry-thumping cash flow and has more control over profitability since most of its earnings come from transaction fees that it charges sellers. That fee recently crossed 10% of sales in the first quarter, up from 8.9% a year ago.

eBay only recently initiated its dividend, but the payout grew 13% this year. Solid sales momentum means investors are likely to see many more years of similarly strong income growth ahead.

Home Depot gets it done

With choices like Sherwin-Williams and Lowe's, there's no shortage of Dividend Aristocrats to like if you want exposure to the home improvement market. Yet it's hard to beat the industry leader, Home Depot.

Just ask Lowe's. The retailer spent most of 2020 capturing small pieces of market share after coming up short for years. Home Depot returned to form in early 2021, though, with sales soaring 30%. Its last dividend increase was a hefty 10%.

Home Depot enjoys higher profit margins, a bigger sales base, and a privileged competitive spot in the industry. Management also targets returning 55% of earnings each year in dividends, compared to Lowe's 35% commitment. That generous income posture won't protect investors from the inevitable downturns that occur from time to time in the housing market. But it will ensure that more cash goes into your portfolio with each passing quarter -- regardless of whether the stock market rises or falls during that period.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos owns shares of Amazon, Home Depot, and Sherwin-Williams. The Motley Fool owns shares of and recommends Amazon and Home Depot. The Motley Fool recommends Domino's Pizza, Lowes, Sherwin-Williams, and eBay and recommends the following options: long January 2022 $1,920 calls on Amazon, short January 2022 $1,940 calls on Amazon, and short June 2021 $65 calls on eBay. The Motley Fool has a disclosure policy.

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Stocks Mentioned

eBay Inc. Stock Quote
eBay Inc.
EBAY
$47.61 (0.70%) $0.33
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$311.97 (0.74%) $2.28
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
LOW
$201.84 (1.39%) $2.76
Domino's Pizza, Inc. Stock Quote
Domino's Pizza, Inc.
DPZ
$394.89 (1.79%) $6.96
The Sherwin-Williams Company Stock Quote
The Sherwin-Williams Company
SHW
$240.49 (1.44%) $3.41

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

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