If you are looking for dividend stocks that can provide both steady income and growth potential, you might want to consider Target (TGT 0.18%) and Leggett & Platt (LEG 0.17%). Both are well-established businesses that have been paying dividends for several decades. They also have strong competitive advantages, resilient cash flows that can support their payouts even in challenging times, and top-tier management teams. Best of all, these two no-brainer dividend stocks trade at attractive valuations right now.
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Target: A top brick-and-mortar retailer
Target is a leading retailer in the U.S., with more than 2,000 stores, a loyal customer base, and a rich operating history that dates back to 1902. The company has been distributing dividends since it went public in 1967. However, its stock has faced some headwinds recently due to fears of a potential recession. It's now down 19.3% year to date. As a result, Target's shares currently trade at 16.9 times forward earnings, which is an attractive valuation for a high-quality dividend stock.
Target has a stellar track record of dividend growth, having increased its payout for 52 years in a row, earning it the status of a Dividend King. Its quarterly dividend of $1.10 per share gives it a yield of 3.6% at the current stock price. Target's payout ratio is a reasonable 59.6%, which indicates it has ample room to boost its dividend in the future. Target also returns capital to shareholders through share repurchases, which reduce the number of shares outstanding and enhance earnings per share.
Bottom line: Value investors may want to seize this opportunity to buy Target's shares at a discount. It is not often that a high-quality dividend stock like Target goes on sale, after all.
Leggett & Platt: Another attractively priced Dividend King
Leggett & Platt is a leading U.S. producer of components for various industries, such as bedding, furniture, automotive, aerospace, and flooring. The company enjoys a dominant position in many of its markets, and it has few rivals in most of its business segments.
However, Leggett & Platt has faced some major headwinds in 2023. Due to the unfavorable macroeconomic environment and the cyclical nature of its business, the company's stock price has dropped by 20.6% since the beginning of the year.
This decline reflects the fact that Leggett & Platt's revenue and earnings have also been declining throughout the year. On the bright side, the company's shares now trade at under 15 times projected earnings, which is a historically cheap valuation for the bedding and textile manufacturer.
This double-digit percentage pullback may have created a compelling opportunity for income investors. Leggett & Platt has a remarkable history of dividend growth, having increased its payout for 52 years in a row. Its quarterly dividend of $0.46 per share gives it a yield of 7.2% at the current stock price.
Now, Leggett & Platt's payout ratio is 105%, which is certainly cause for concern regarding the sustainability of its dividend and the feasibility of future hikes. However, the company's long track record of boosting its payouts -- even during troughs in business cycles -- should reassure income investors.
In all, Leggett & Platt is a Dividend King that has been struggling with the difficult macroeconomic situation in 2023. Given that its business is likely to recover along with the wider economy at some point, bargain hunters may want to consider adding this high-yield cyclical stock to their portfolio soon.
