Many investors seem to have lost interest in dividend stocks as the focus on Wall Street has gravitated toward more exciting, growth companies. That could change quickly, though, if a market downturn hits or if sales gains in crowded tech areas like cloud services and e-commerce begin to disappoint.
Yet dividend stocks are great to have in your portfolio in any economic environment, and their relative underperformance lately only offers higher yields to new investors. Right now, dividend payers McDonald's (MCD -0.09%) and Winnebago (WGO -3.92%), look like particularly great buys.
Winnebago is boosting its payout
Winnebago was an attractive business even before the pandemic put a new premium on the outdoor lifestyle. But the recreational vehicle giant has several more factors going for it right now. Start with its prime position in the industry. Winnebago's market share recently rose to over 12% as sales hit a record $961 million in its most recently reported fiscal quarter, and its backlog is growing as dealers can hardly keep enough inventory on their lots.
The company also offers an unusually diverse portfolio, thanks to management's long-term acquisition strategy. In addition to its core Winnebago brand, the RV giant sells a huge fleet of towable products, luxury motor homes under the Grand Designs brand, and now boating vehicles from the Chris-Craft family. These niches are helping to steady sales growth while boosting profitability.
Winnebago's biggest challenge in late 2021 will be scaling up production so it can whittle down its backlog. The main investor concerns heading into September include supply chain challenges and a potential growth slowdown. But the stock, which has trailed the market so far this year, looks like a bargain -- especially given the 50% dividend payout hike that's set to hit shareholders' accounts in late September. Winnebago’s yield is just over 1% after factoring in September’s increase. That's smaller than the market average, but growing quickly.
McDonald's is growing again
You wouldn't know it by looking at its recent stock performance, but McDonald's business is as strong as it has ever been. Revenues returned to record territory last quarter as economies around the world reopened. The fast-food giant paired that success with big wins on the financial side of the business. Operating profit margin is at a market-crushing 43% of sales over the past six months.
The burger chain might be able to boost that number even further as it slims down its menu and leans into its home-delivery and drive-thru sales channels. These strategic priorities leverage McDonald's natural competitive advantages, including its brand power and its massive network of locations. "It's clear that our next chapter will be driven by our leadership in digital," CEO Chris Kempczinski told investors in late July.
While they wait for those initiatives to increase profits over time, shareholders can collect a rising payout from this Dividend Aristocrat, which is up by around 11% so far in 2021, trailing the market's nearly 20% gain. McDonald's September dividend payment will be $1.29 per share, up from $1.25 per share a year ago. That amounts to a 2.15% yield vs. 1.29% for the S&P 500 index.