No matter what happens to the markets in the near term, it helps to own top consumer brands that are strong financially and pay regular dividends to shareholders. The markets have a long history of growing in value, but the occasional bear market can make that extra dividend income in your portfolio extra valuable.
If you're looking to boost your portfolio's average yield, three Motley Fool contributors believe Starbucks (SBUX 0.47%), Vail Resorts (MTN -0.35%), and Home Depot (HD 0.94%) would make solid choices right now.
One of the best growth dividend stocks
John Ballard (Starbucks): One top brand that should make a rewarding dividend stock for the long term is Starbucks. The stock recently pulled back and is down 8.6% year to date at the time of writing, but the company has reported exceptional growth during a difficult stretch for the economy.
Even with above-average inflation over the last year hurting consumer spending power, Starbucks reported a solid 12% year-over-year growth rate in sales last quarter, with adjusted earnings up 19%. That is impressive performance for a company that already has a global footprint of over 37,000 stores.
Starbucks can still crank out the growth, and it's not done. Management is targeting 55,000 stores by 2030, which should translate to adjusted earnings growth of between 15% to 20% annually through at least fiscal 2025.
The stock already pays an above-average dividend yield of 2.34%, which is supported by a payout ratio of 63%. Given the company's earnings growth target, it could almost double its dividend payment over the next five years, which would put the yield on an investor's cost basis from today's share price at nearly 5.7% in another five years.
Get ready for a winter wonderland
Jeremy Bowman (Vail Resorts): Vail Resorts may not be the reliable growth stock it was a few years back when the company was aggressively making acquisitions and rolling them into its Epic Pass. In fact, the stock is down over the last five years, in part because COVID threw it a curveball, and business is still normalizing in the reopening.
However, with the travel market remaining strong and a recession looking increasingly unlikely, this upcoming ski season could be a banner one for Vail Resorts, which owns dozens of ski resorts around the world.
As of May 30, pass product sales for the upcoming ski season increased 6% in units and 11% in sales dollars, a strong indication of demand from returning members. The company is also introducing a new membership program called My Epic Gear where members will receive top-of-the-line gear delivered and picked up as needed.
Vail's business is naturally sensitive to weather, and the company cited significant weather-related challenges in the 2022-23 ski season, including travel disruptions, which led to a weaker-than-expected performance.
However, lapping that weakness in the coming year should give Vail an opportunity to deliver better-than-expected results in its new fiscal year.
The company remains in a strong competitive position, essentially in a duopoly with Alterra, which runs the mountain resorts under the Ikon Pass, and it should grow along with the industry, taking advantage of acquisition opportunities as they come up.
For dividend investors, right now looks like a great time to buy the stock on weakness. Vail currently offers a dividend yield of 3.5%, and the company has a history of delivering strong dividend increases.
Analysts expect the business to return to robust profit growth next year, and as it does, investors should be rewarded with another juicy dividend hike.
Winners keep winning
Jennifer Saibil (Home Depot): Dividend stocks are usually established, well-run cash machines with moats and industry-leading products. That describes Home Depot perfectly. It may not be the next exciting growth stock, but it doesn't have to be to create reliable shareholder value.
Home Depot has been struggling this year as the housing market remains pressured. And it's not expected to get better anytime soon. Housing data from the Commerce Department this week gave a depressing picture, as August home sales missed expectations and were 8.7% lower than in July.
Home Depot's performance usually moves in sync with that of the mousing market. Sales declined 2% in the 2023 second quarter, and even earnings per share (EPS) were down from $5.05 last year to $4.95 this year. It's not expecting any improvement in the near term, especially considering the continued housing market decline. Management is guiding for full-year sales and comparable sales to decreased 2% to 5%, and for EPS to decline 7% to 13%, although that might be optimistic at this point. It's been dismal enough to send the stock down almost 4% this year even as the S&P 500 is up 12%.
Yet Home Depot stock is a perennial winner. It's the largest home improvement chain in the world by store count, which is more than 2,300, and sales. It will always go through these kinds of phases, but they have always been more than compensated by strong housing markets, and that's likely to happen again. Sales also get a boost even now from people who can't move to a new house and need to invest in improving their current homes.
In the meantime, there's the dividend, which yields 2.7% at the current price, or well above the average S&P 500 yield of 1.54%. Home Depot has paid a dividend since 1987, and it raised it 10% this year.
At the current price, Home Depot stock trades at less than 20 times trailing 12-month earnings. That's a great deal for an excellent stock that should rebound big and provides passive income under all circumstances.
