Dividend stocks are always valuable for an investing portfolio, since they provide income regardless of what happens to the stock price. They're particularly important for a retirement portfolio for the income, and investors appreciate their security when the market is volatile.
They often sport cheap valuations, since their high growth days are usually behind them. For great dividend stocks with high yields, cheap prices, and reliable performance, I recommend Home Depot (HD +0.13%), Williams-Sonoma (WSM +0.74%), and American Express (AXP +1.06%).
NYSE: HD
Key Data Points
1. Home Depot: The largest home improvement retailer in the world
Home Depot operates 2,300 stores throughout the U.S., Canada, and Mexico, making it the largest home improvement retailer in the world. It typically demonstrates competitive sales growth and expands along with the housing market. With the housing market pressured, plus general inflation and facing the extraordinary growth it experienced at the beginning of the pandemic, it's become tough for Home Depot to demonstrate continued sales increases.
The company still managed to post 4.1% year-over-year sales growth in fiscal 2022 (ended Jan. 29), but that trickled to 0.3% in the fourth quarter, when comparable sales decreased the same amount. Even worse, management is guiding for flat sales and comps in 2023 and a slight decrease in earnings per share (EPS). The company reports first-quarter earnings this week.
Home Depot stock is down about 9% this year, and at this price, it trades at a price-to-earnings ratio of 17. That's objectively cheap, and it's also substantially below the three-year average.
HD PE Ratio data by YCharts
Dividend yield moves inversely with stock price, so a lower price means a higher yield. Home Depot's dividend yields 2.7% at the current price, and that increased with the combination of a lower price and an increased dividend. Home Depot has raised its dividend for the past 13 years.
The dip on Home Depot's price looks like a solid buying opportunity for income investors and those with long time horizons looking for a secure stock.
NYSE: WSM
Key Data Points
2. Williams-Sonoma: The all-important resilient consumer
Williams-Sonoma has carved out a retail niche in premium housewares and furnishings. Targeting an upscale consumer has the benefits of being able to charge premium prices, which typically leads to strong margins and robust profits, and maintaining sales growth under pressure, since this demographic has more money at its disposal.
These advantages led to continued strength for a while even after the original pandemic-fueled sales surge. But like Home Depot, Williams-Sonoma is struggling to maintain that as the high-inflation environment persists. Full-year 2022 revenue increased 6.5%, but declined 0.6% in the fourth quarter. It did eke out a 1.5% increase in EPS to $5.28. The company is expecting revenue to either grow or decline up to 3%, and reiterated its long-term goals of mid- to high annual revenue growth.
Williams-Sonoma stock trades at less than 7 times trailing 12-month earnings, well below its 5-year average.
WSM PE Ratio data by YCharts
At this price, which is about flat year to date, its dividend yields 2.8%. That's a juicy yield for now, and an excellent entry point for a stock with robust long-term opportunities.
3. American Express: Developing a new cadre of customers
American Express has continued to enjoy high sales growth despite the inflationary environment. It recovered from earlier pandemic declines, and the new economic volatility hasn't slowed it down.
NYSE: AXP
Key Data Points
Like Williams-Sonoma, American Express also targets a more affluent consumer base, which gives it greater resilience. These people are still getting back to some of the travel and leisure they put on the back burner when there were restrictions, and this is generating growth for the company. The company also pivoted to target a younger clientele, and this cohort is driving the greatest growth. It accounted for 60% of new customers in the first quarter and was the fastest-growing age group.
Profits declined year over year in the 2023 first quarter, with EPS down from $2.72 last year to $2.40 this year. As its own bank, American Express sets aside provisions for losses, which come out of net income. With high interest rates, it had to increase those provisions.
American Express stock is about flat year to date and trades at a price-to-earnings ratio of 15. This is slightly below the 5-year average.
AXP PE Ratio data by YCharts
American Express typically trades at a low valuation, which is probably one of the reasons Warren Buffett likes it so much.
The stock's dividend yields around 1.46%, which isn't the highest yield, but it's rock-solid. American Express is a secure stock with tons of long-term potential at a great price.
