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3 Dividend Stocks That Had a Record Year and Are Just Getting Started

By Howard Smith – Updated Oct 13, 2021 at 9:12AM

Key Points

  • These dividend paying companies hope new offerings will help drive sales higher.
  • Pepsi is leveraging one of its most popular brands to grow sales.
  • Nucor is reinvesting profits to help shift the environmental narrative of the steel industry.

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There's good reason the stocks of these dividend payers have hit recent highs -- here's why there's more to come.

It shouldn't come as a surprise that with markets trading near all-time highs, there are well-known large cap companies also priced at, or near, record levels. But investors should realize it doesn't have to be just high-flying growth names that are hitting records. 

One can build wealth with a core base of slow and steady growers that also provide income through dividends. Three such stocks are beverage and snack maker PepsiCo (PEP -0.11%), home improvement retailer Home Depot (HD 0.28%), and leading steel and steel products company Nucor (NUE 3.32%). These stocks have reached all-time highs this year because the underlying businesses are making record earnings. With solid plans to continue that momentum, investors that include them in their portfolios should expect more to come. 

Investor in front of laptop who is cheering returns.

Image source: Getty Images.

Growing a strong brand

Many people invest in the consumer staples sector for ballast and income in a portfolio. PepsiCo delivers in both areas. After raising its dividend by 5% above 2020 levels, this year marks the company's 49th consecutive year with an increase in the payout. Next year, PepsiCo will presumably join the elite list of Dividend Kings. It makes sense for the stock to be included in the income-generating portion of a portfolio with shares yielding 2.7% at recent prices. 

But the market hasn't driven Pepsi shares to new highs because of its dividend strategy. Navigating the impacts of the pandemic was a mixed bag for PepsiCo. While at-home sales were strong, the suspensions of events at venues from movie theaters to sports arenas took a toll on that side of the business. Overall, however, PepsiCo grew sales by almost 5% for the full-year 2020. 

And growth has accelerated as the pandemic wanes and economies reopen. Through its third quarter 2021 period ended Sept. 4, 2021, sales have increased another 13.2% versus the year-ago period. The strong results prompted the company to raise full-year 2021 guidance for both revenue and earnings per share. One of the places PepsiCo expects its growth to come from is by expanding the reach of one of its most popular brands. 

The company is leveraging Mountain Dew with two different partnerships. PepsiCo is putting a twist on the Mountain Dew taste with the launch of Mtn Dew Thrashed Apple citrus drink that will be available at Kroger's family of grocery stores. And this summer, the company announced it will be collaborating with craft brewer Boston Beer to produce the Hard Mtn Dew alcoholic beverage. Investors that are happy pulling income from Pepsi shares will most likely continue to also enjoy the growth portion of the business that has shares trading around all-time highs. 

Ahead of the online sales trend

Like PepsiCo, Home Depot has embraced a model of capital allocation that includes paying shareholders increasing dividends. In fact, over the past 10 years, Home Depot has boosted those payouts far faster than PepsiCo. 

HD Dividends Paid (TTM) Chart

HD Dividends Paid (TTM) data by YCharts

And Home Depot is also returning capital to shareholders through share buybacks. Along with a 10% dividend increase, the home improvement retailer announced a new $20 billion share buyback authorization program on May 20, 2021 to replace its existing program. 

Also like PepsiCo, Home Depot management has kept its foot on the gas for growing the underlying business. Two major initiatives have been its $11 billion One Home Depot investment the company announced in late 2017. That strategy to grow the company's e-commerce business was perfectly timed to maximize customer needs during the pandemic. And the company also refocused on its professional contractor base with the $8 billion acquisition of HD Supply late last year. 

The growth moves have already paid off. With help from pandemic-related tailwinds, sales for Home Depot's fiscal 2020 period ended Jan. 31, 2021, grew 20% over fiscal 2019. That business strength continued into fiscal 2021 with net revenue growing almost 19% for the six months ended Aug. 1, 2021. Those results have brought shares to record levels, and if the company continues to perform at this level, it should continue to help shares make new highs. 

Nucor galvanizing line processing pulpit with computers and operator facing line.

Image source: Nucor.

Taking a grey industry green

The steel industry has always been cyclical, and there's no reason to think that will change. But current circumstances have put the major steelmakers in a unique position that seems likely to shift the new cycle to much higher highs and higher lows. One thing industry leader Nucor has done to help smooth out the cycles for investors is pay a steady dividend. If Nucor raises its annual payout in December as expected, it will match PepsiCo for its 49th straight year of increasing dividends, and will join the list of Dividend Kings next year with one more raise. 

And boosting those payouts shouldn't be any problem for Nucor. After steel prices have surged, and with demand booming from customers in most every sector, Nucor surpassed its previous annual earnings record in just the first six months of 2021. And the company says it will achieve a new quarterly earnings record with the third-quarter results it will announce on Oct. 21, 2021. 

But the company is not sitting on its laurels. Nucor management has been more vocal at showing that what used to be thought of as a smokestack industry has made major strides to produce steel cleaner. And it has taken another step by offering the industry's first net-zero carbon steel product. 

By using previously announced power purchase agreements that utilize renewable wind and solar energy capacity, Nucor said General Motors will soon be its first customer for its green product offering dubbed Econiq. The steelmaker will also purchase carbon offsets "to negate any remaining Scope 1 and 2 emissions." 

The industry-leading product offering is far from the only place where Nucor expects future growth to come from. It is also using its generous cash flow to invest to further grow the business. In addition to several prior investment projects totaling more than $3 billion, this year the company has acquired an insulated metal panel business for $1 billion in cash; announced a new state-of-the-art greenfield steel mill project that will focus on value-added products; and "will have a significantly lower carbon footprint than nearby competitors," according to the company.

Investors can enjoy a steady, and increasing, dividend from Nucor while the company brings new investments into operation over the coming several years. Though the industry, and the stock, will likely remain cyclical, those operations should shift the cycle for Nucor to new levels. 

Howard Smith owns shares of Home Depot and Nucor. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool recommends Boston Beer. The Motley Fool has a disclosure policy.

Stocks Mentioned

Home Depot Stock Quote
Home Depot
HD
$327.99 (0.28%) $0.92
PepsiCo Stock Quote
PepsiCo
PEP
$185.69 (-0.11%) $0.21
Nucor Stock Quote
Nucor
NUE
$154.20 (3.32%) $4.95

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

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