Midway through 2023, the stock market has rewarded many investors, with the S&P 500 up 15% year to date. However, not all stocks have participated in the rally, including many thought of as reliable dividend stocks.
As a result, some of these laggard dividend-paying stocks are seeing their dividend yields -- the ratio of a company's annual dividend to its share price -- jump to unusually high levels. So let's look at three dividend-paying stocks worth considering buying on sale.
1. Cedar Fair
Now that it's officially summer in the United States, many Americans will be flocking to amusement and water parks across the country, many of which are owned and operated by Cedar Fair (FUN 1.11%). The stock has been on a roller coaster since the onset of the pandemic, and remains flat in 2023 as it has yet to sustain a recovery to pre-pandemic levels.
As a result of the pandemic, Cedar Fair's management suspended the company's quarterly dividend, which it had consistently paid since 1987. Once attendance stabilized in 2022, management reissued the dividend. The company currently pays a quarterly dividend of $0.30 per share, representing a 2.9% dividend yield.
While management hasn't given guidance for 2023, the company's record-breaking 2022 indicates that the business is growing again. Specifically, Cedar Fair generated roughly $1.8 billion in sales in 2022 compared to $1.5 billion in 2019.
Additionally, Cedar Fair completed a $250 million share repurchasing program in April, which lowered its outstanding share count by roughly 10%. By reducing Cedar Fair's share count, management is returning capital to investors by making existing shares more valuable.
Additionally, management recently authorized a new $250 million share repurchasing program, which will only be implemented with the company's positive free cash, not debt.
Speaking of debt, Cedar Fair's net debt (total debt minus cash) exploded during the pandemic to $2.7 billion at the end of the second quarter of 2021, but management has paid it down to $2.4 billion as of March 31. Moving forward, management must continue allocating cash toward its debt, as high interest rates will weigh down the balance sheet. Still, as long as the company continues attracting thrill-seekers at a similar rate, the stock should be ready for its next ascent.
2. Home Depot
Home Depot (HD 0.94%) has faced challenges in 2023, which is reflected in its stock price -- it's down roughly 5% at the midpoint of the year. But the largest home improvement retailer by market capitalization is a dividend investor's dream, with 36 consecutive years of payouts and a current dividend yield of 2.8%.
One likely reason for the stock struggling is that inflation and higher interest rates are weighing on its customers. With softer demand in the short term, sales and earnings per share dropped 4.2% and 6.6% respectively in Home Depot's fiscal first quarter of 2023 compared to its fiscal first quarter of 2022.
Additionally, management recently reaffirmed guidance for its fiscal year 2023, with a decline between 2% and 5% in comparable sales and a diluted earnings-per-share decline between 7% and 13% compared to fiscal 2022.
Despite Home Depot's gloomy 2023 outlook, CEO Ted Decker is confident in the company's long-term success.
"While the near-term environment is uncertain," he said, "we remain bullish on the medium-to-long-term outlook for home improvement and our ability to grow share in this large and fragmented market."
Notably, housing data from the 2020 U.S. Census backs up Decker's optimism. Roughly 50% of homes are older than 40 years old, meaning many homeowners may need to visit Home Depot for a repair sooner rather than later.
Based on the future price-to-earnings (P/E) ratio -- a common valuation metric that considers management's earning guidance -- Home Depot stock seems to be discounted. Specifically, Home Depot trades at a future P/E ratio of 20.1, notably lower than its five-year P/E ratio of 21.8, indicating a potential buying opportunity for long-term investors willing to wait out the macroeconomic headwinds.
3. Nike
Like the others on this list, Nike (NKE 0.19%) has performed poorly in 2023, with its stock price down about 7% year to date. The shoe and apparel company has paid a quarterly dividend since it went public in 1985, and it has raised its annual dividend rate for 21 consecutive years.
Nike currently pays a quarterly dividend of $0.34 per share, resulting in a 1.21% dividend yield. This exceeds Nike's five-year average dividend yield of approximately 1.04%, indicating a higher-than-average yield for its investors.
The company continues to put up impressive sales growth, highlighted by revenue of $12 billion for its fiscal third quarter of 2023. That represented an enviable 14% year-over-year increase compared to its fiscal third quarter of 2022.
Digging deeper, Nike's gross margins dropped by 3.3% during that time, a sign that operations are becoming less efficient. Management blamed higher supply costs and higher markdowns for the drop. The latter is more concerning because it shows that the company must rely on discounts to move its products to avoid excess inventory. And despite the discounting, Nike's most recently reported inventory levels jumped 16% year over year from $7.7 billion to $8.9 billion, likely leading to further discounting and higher storage costs.
Nonetheless, Nike is a longtime market leader in shoes and apparel, with unmatched brand loyalty and revenue. The $170 billion company has some work to do to improve operations, but overall, patient investors will likely be rewarded for buying a longtime winner at discounted prices.
Are these dividend stocks buys?
Despite not keeping up with the benchmark S&P 500 in 2023, these three dividend stocks have proven themselves to be industry leaders with histories of consistent dividend payouts. Beyond their commitment to returning capital to shareholders, these stocks are all trading at attractive valuations, making them ideal candidates for a dividend investor's portfolio.
