Dividend stocks are always a favored class among certain investors. And they look even more enticing when the market becomes volatile -- as it has been so far in 2022 with the S&P 500 down about 8% in 2022 after rising 27% in 2021.
Dividend stocks are typically dependable, providing a steady flow of income independent of how the broader market performs. They are usually stable companies with tons of cash, and they don't typically have high growth aspirations. Costco Wholesale (COST -0.96%), Home Depot (HD -0.80%), and PepsiCo (PEP -0.15%) are three of my favorite dividend stocks, because they offer impressive yields and are posting some of their best growth ever.
1. Costco: A low yield, but a special dividend
Costco is not your typical top dividend stock, yielding only 0.61% at the current price, well below the S&P 500 average of 1.41%. But it also pays an occasional special dividend that makes up for it.
Image source: Getty Images.
It has paid this dividend four times over the past 10 years as follows: $7 in 2012, $5 in 2015, $7 in 2017, and $10 in 2020. In addition to its regular dividend, that comes out to $48.45 per share over the past 10 years, and makes the real yield much higher. For 2020, the total yield came out to 3.39% at the year-end share price, which is comparable to many top dividend stocks. Averaged out over the past 10 years, that comes down but is still much higher than meets the eye.
Management doesn't have a set time for giving out the special dividend; it's when the company is flush with extra cash. When it issued the most recent one at the height of the pandemic, Chief Financial Officer Richard Galanti said that the company could have done even more. As for the next special dividend, he said recently: "We haven't made that decision at this juncture. It's probably a when, not if ... we do it."
In the meantime, Costco has raised its dividend annually for 18 consecutive years, making it at the very least dependable. The other reliable part about Costco is its stock's growth. While mostly staying out of the limelight, its share price increased 51% in 2021 -- and more than 200% over the past five years.
Sales continue to grow year over year at higher rates than before the pandemic. Customers like the company's low prices, which are especially compelling when there's general inflation. Investors can feel confident that Costco's sales and stock price will continue to advance and reward them for years along with a dividend.
2. Home Depot: Offering both growth and a dividend
Home Depot stock has been very profitable for investors, gaining 56% in 2021 and more than 150% over the past five years.
It was a big winner during the pandemic as people staying indoors spent money on home improvement, and that continued throughout 2021. Sales increased more than 14% year over year in all of 2021, and the company closed out the year with an 11% year-over-year sales increase in the fourth quarter. Profitability improved as well with $3.21 in earnings per share in the fourth quarter vs. $2.65 last year. That brings its price-to-earnings (P/E) ratio down to 22 at the current price.
Due to its phenomenal performance over the past two years, combined with headwinds in the form of continued supply-chain issues and rising costs, management only expects slight sales growth in 2022. There will be a CEO change as well with company veteran Ted Decker to take over from Craig Menear next month.
The company also announced another dividend increase, raising it by 15% to $1.90 per quarter in 2022, yielding 2.2% at the current price -- higher than the average S&P 500 yield of 1.41%.
3. PepsiCo: Snacks, drinks, and dividends
PepsiCo is known for its soft drinks, but it also owns snack brands such as Lay's and Doritos as well as breakfast label Quaker. So while its beverage offerings are second to rival Coca-Cola, PepsiCo is a bigger company with higher sales. Its broader range of products also acts as a hedge, which was crucial to its strong performance in the early stages of the pandemic. People staying home -- munching on chips and having breakfast -- kept sales strong even as the away-from-home beverage segment slowed.
Growth continued through 2021, and PepsiCo closed out the year with a 12.4% year-over-year sales increase in the fourth quarter and 12.9% for the full year. Snacks and cereal maintained high growth and beverages rebounded for an all-out great quarter. The company was affected by cost increases in the fourth quarter, and it responded with some price increases and cost-cutting, demonstrating that it can grow revenue despite pressures. Profits were lower in this operating environment, but they're expected to increase in 2022.
PepsiCo announced a 7% dividend hike for 2022 -- and with that raise, it joins the exclusive Dividend Kings club, meaning it has raised its dividend annually for 50 years (or more). It yields 2.55% at the current price. This is a more popular dividend stock, and it's also posted unusually high sales growth during the pandemic. That's why its share price has outperformed the S&P 500 over the past year, 27% to 11%.
PEP data by YCharts.
All of these companies are demonstrating impressive growth at the same time they are raising their dividends. They're flush with cash from their successful operations, and they're using it to benefit shareholders through providing income as well as making their businesses even better. That's a winning combination for investors. Expect more great performance and higher dividends for many years from Costco, Home Depot, and PepsiCo.
