The best dividend stocks are prized for their ability to deliver predictable income and earnings growth. These factors are even more valuable at times when elevated volatility is impacting the market, as it is right now.
But jitters about a potential recession on the way have made many attractive dividend stocks cheaper while at the same time lifting their yields. Let's look at three standout options in this group: Kimberly-Clark (KMB 1.66%), Walmart (WMT 1.02%), and Home Depot (HD 0.22%).
1. Kimberly-Clark
There are several reasons why Kimberly-Clark isn't as dominant as rival Procter & Gamble. But the biggest factor separating these consumer staples giants is profitability, with P&G's operating margin coming in at over 20% compared to 13% for its smaller peer.
Yet Kimberly-Clark is growing at about the same rate today, with organic sales on pace to rise slightly in 2023 after jumping last year. Sure, those gains are mostly coming from price increases. But people are still paying up for their favorite consumer essentials.
And investors are getting a big discount for the stock compared to P&G's. Kimberly-Clark shares are trading at 2.2 times sales while you'd have to pay nearly 5 times sales for P&G. At the same time, Kimberly-Clark's dividend yield is roughly a full percentage point higher at 3.6% today. Those are some attractive qualities for a company that has raised its dividend for 50 consecutive years.
2. Walmart
The world's biggest retailer is looking more tempting as a long-term stock investment. Growth has held up well into early 2023, with comparable-store sales rising 8% through late January. Importantly, Walmart is seeing higher traffic and increasing average spending whereas many of its peers are boosting sales simply through higher prices.
Yes, Walmart is enduring a weak period when it comes to earnings. Operating margin in 2023 is projected to hold roughly steady after falling last year. More specialized retailers perform much better on this score. Tractor Supply, for example, boasts a 10% margin compared to Walmart's 3%.
Yet Walmart stock is far cheaper at 0.6 times sales compared to Tractor Supply's P/S ratio of 1.8. Its dividend yield is about double Costco's as well. That's a compelling discount for a geographically diverse business that is resistant to recessions.
3. Home Depot
Investors are getting a good discount in exchange for taking on more risk with Home Depot's stock. It's true that the housing industry will be pressured by higher interest rates and could contract if a recession develops this year.
Home Depot has been through many cyclical pullbacks, though, and has always emerged stronger. It routinely trounces peer Lowe's in key metrics like profitability, market share growth, and financial efficiency. Home Depot's bigger business, which includes a large presence in the professional contractor niche, makes it less susceptible to industry downturns, too.
The stock isn't cheap compared to Lowe's, but it has become less expensive since early 2022. Shares are trading for less than 2 times annual sales; that valuation had been above 2.5 back then. Despite its relatively weak short-term growth prospects, investors should consider that discount a good chance to add an excellent dividend stock to their portfolios.
