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3 Hot Stocks That Offer Great Dividends

By Jennifer Saibil - Nov 25, 2021 at 11:00AM

Key Points

  • Target's store sales are still growing in the double digits.
  • Despite its size, Walmart is finding new ways to expand.
  • Starbucks is making a big push outside of the U.S.

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These companies all posted excellent earnings and are also increasing their payouts to investors.

Earnings season is winding down, and there was lots of good news as well as some surprises. Many retailers that benefited from last year's pandemic-related, sales spurt continued to see strong earnings -- much to the delight of their shareholders. Even better, some of these retailers are also managing to grow their dividends, making these shares even smarter buys.

Target ( TGT -2.13% ), Walmart ( WMT -1.40% ), and Starbucks ( SBUX -0.98% ) all posted great earnings recently and upped their dividends too. Let's see why this should cheer investors.

Proving itself as the retailer of choice again

Mega-retailer Target continues to dominate the U.S. market, and the reason is not a mystery. It comes down to Target's three important strengths: omnichannel capabilities, a commitment to value, and creativity in the distribution process. And it's the way these three ingredients all work together that make the retail chain a force in shopping. It helped fuel a 12% increase in comparable-store sales, or comps, in the third quarter.

A person with a shopping cart filled with groceries standing next to the open hatchback of a car.

Image source: Getty Images.

First, there's its omnichannel focus. Target has been pumping money into its digital program for years, developing a strong backbone of features to support all the ways customers want to shop. It has also renovated stores and built out new store formats to bring it all together. We can see this in the third quarter: store sales increased $3.8 billion and digital sales grew by $3.1 billion. While stores led the way, both segments are now contributing meaningfully to total sales growth.

As for value, Target has created and expanded several lines of its own brands that mimic top labels in terms of quality and design but offer more affordability. 

The distribution process has also played an important role in the company's ability to effectively grow its digital business. More than 95% of digital orders were filled in-store in Q3, a percentage the company has been able to maintain for the past three quarters. Its mix of same-day options also works together to get products to shoppers faster and cheaper.

Chief operating officer John Mulligan said in March: "The ... way we see our costs come down is through the mix. Drive-up, order pick-up, and Shipt all have much better economics ... than shipping from the back of our stores, which also has better economics than shipping from our fulfillment centers."

In September, Target announced a 32% increase in its dividend to $0.90. The stock's yield at its current price is 1.27%. That's the company's 50th consecutive annual dividend increase, and with it Target joined the elite ranks of Dividend Kings.

Still the largest retailer in the U.S.

Walmart also benefited from customers returning to stores in the third quarter. The world's largest retailer posted a 9% year-over-year increase in U.S. comps and raised its full-year outlook to more than 6% growth in sales.

It's difficult to compete with Walmart's breadth. It operates more than 4,700 stores in the U.S. alone and more than 10,000 worldwide. Yet it's still finding ways to grow. Advertising is becoming a bigger part of its sales strategy.

The company is also leaning into artificial intelligence to improve its platform, using technology-driven models to offer more competitive services. For example, it's overhauling its last-mile delivery systems, typically a more challenging part of the process since it relies on local shipping agents. It's using a new, data-driven program to spread delivery across more drivers.

It's also taking on big clients like Home Depot, providing them last-mile delivery service under the client's name. These are the kinds of initiatives that will generate more growth for the mega-retailer as store count becomes a less sustainable way to grow.

Walmart is also working to generate more organic growth. On the Q3 earnings call, CEO Doug McMillon said, "Our international markets are building flywheels that have common characteristics with each other -- and with the U.S. -- which helps us innovate and leverage the technology we're building."

Walmart raised its dividend in February to $0.55, and the stock yields 1.5% at its current price. That is the company's 48th consecutive annual dividend increase. Impressive, indeed.

A customer standing in front of a Starbucks store.

Image source: Starbucks,

An empire of coffee

Starbucks notched another win in its recovery from pandemic lows in its 2021 fiscal fourth quarter. For the period ended Oct. 3, overall revenue increased 31% year over year while comps grew 17%.

If you already feel like there's a Starbucks on every corner, consider that by 2030 the company is planning to add another 21,000 stores to its nearly 34,000 current locations. Next year alone it has 2,000 new stores planned, up from over 1,100 in 2021 -- and 75% of them outside the U.S.

The company is also growing in more than store count, cultivating relationships to bring ready-to-drink products like bottled cold brew to a wider resale market through deals with bottlers and other suppliers.  

Although Starbucks' stock price fell after the Q4 report due to supply-chain fears, the company has made aggressive moves to maintain its merchandise supply and meet holiday demand.

For the full fiscal 2022, management predicts almost 14% sales growth, ahead of its earlier 8% to 10% estimate. The company also said it expects some margin pressure due to wage increases, but anticipates better working conditions to result in improved customer loyalty and higher sales long-term. That's a great focus on the future.

In September, Starbucks increased its dividend to $0.49, which gives the stock a 1.6% yield at its current price. That's its 11th straight dividend raise -- and just another reason to invest in this stable but growing company.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Target Corporation Stock Quote
Target Corporation
TGT
$243.84 (-2.13%) $-5.32
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$140.63 (-1.40%) $-2.00
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$109.64 (-0.98%) $-1.09
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$3,507.07 (-1.53%) $-54.50
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
HD
$398.96 (-1.93%) $-7.86

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

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