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2 Top Dividend Kings to Buy in 2022 and Hold Forever

By Jeff Santoro – Jan 5, 2022 at 10:15AM

Key Points

  • A greater focus on professional customers has paid off for Lowe's.
  • Shoppers love Target's digital and same-day pickup options.
  • Both companies are growing impressively and repurchasing shares.

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An ever-increasing dividend is just one reason to buy these two companies.

For those seeking investments that can generate income, there's no better place to start than with Dividend Kings. These are companies that have raised their dividends for at least 50 consecutive years. From this list, Lowe's (LOW) and Target (TGT 1.50%) stand out as companies that have been growing impressively and repurchasing shares, bringing more value to shareholders than just an ever-increasing dividend. Let's take a closer look at each one.

Lowe's is building on the pandemic's tailwinds

Home improvement giant Lowe's saw incredible growth during the pandemic as house dwellers -- stuck inside -- used that time to improve their living spaces. The retailer has seen revenue growth accelerate from the single to double digits over the past two years.  Revenue and net income have increased 32% and 81%, respectively, between the third quarter of 2019 and the same quarter in 2021. Comparable sales in the U.S. -- a metric that compares how much customers spend in existing locations over time -- was up nearly 34% from 2019.

While the pandemic has accelerated growth temporarily, Lowe's is also working hard at improving sales and profitability over the long term.

A hand puts a penny into a jar sitting next to two additional jars full of coins.

Image source: Getty Images.

Lowe's has put a lot of effort into growing its "pro" services for such customers as contractors -- an effort that has helped it compete with rival Home Depot. In Q3, the pro segment grew 16% over the prior-year period, continuing a trend seen over the past several quarters (up 30% in the first quarter followed by 21% in the second quarter). Growth in this segment is important and should help keep overall sales up even as homeowner purchases return to their pre-pandemic levels.

The company is also seeking to create more shareholder value through buybacks. In Q3, Lowe's repurchased $2.9 billion of its shares and plans to increase buybacks still further in the fourth quarter, bringing the year-end total to about $12 billion. This continues a trend that extends back several years.

For 2021, the stock was up 61% vs. the S&P 500's 27%, providing shareholders with a healthy, overall return on top of its 1.1% dividend yield and share repurchases.

Target's digital efforts are paying off

Much like Lowe's, Target saw massive tailwinds during the height of the pandemic. While the company has experienced some slowing of that growth over the past few quarters, there are plenty of signs that good things are still in store for shareholders.

Target's investments in its digital presence and the popularity of its same-day delivery services -- which include walk-in pickup, curbside pickup, and home delivery -- are improving the top and bottom line. In its fiscal Q3 ended October 30, revenue grew 13% over the year-ago period while net income jumped 47%.

The two-year picture is one of consistent growth. Comparable-store sales were up 9.7% after increasing 9.9% in the prior year. Meanwhile, digital sales increased 29% on top of 155% in Q3 of 2020, and same-day services grew 60% after increasing 200% in the prior-year period. The results suggest that customers have enjoyed these new ways of ordering and contradict the narrative that Target's growth was pandemic-dependent.

The good news for shareholders doesn't end there. Target was also active in repurchasing shares this year, including $2.2 billion worth in Q3 alone. Plus, the shares currently sport a dividend yield of 1.4% -- just a tad higher than S&P 500's -- and the share price was up a market-beating 33% in 2021.

While their status as Dividend Kings may put Lowe's and Target on a short list of stocks to own, a closer look reveals companies that look more like growth stocks due to their ability to navigate the pandemic as well as innovate in how they do business. For investors looking for reliable businesses to anchor their portfolio, Lowe's and Target are solid choices.

Jeff Santoro owns Target. The Motley Fool owns and recommends Home Depot. The Motley Fool recommends Lowes. The Motley Fool has a disclosure policy.

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