Come one, come all, income investors, and see the magic that we know as dividends. Dividends are a large factor in reducing portfolio risk and volatility, and the dividend itself helps mitigate losses in a stock price. But ultimately, it just feels good to have a company pay you a little bit for having skin in the game.
Here are three fantastic dividends with upside: Stellantis (STLA 0.57%), Kraft Heinz (KHC -0.55%), and The Home Depot (HD 0.94%).
No longer in the shadows
One of the best automotive dividends is often forgotten. Stellantis sometimes lags its crosstown rivals Ford Motor Company (F -1.92%) and General Motors (GM 0.48%) in headlines, but over the past year it's arguably been the best dividend stock of the three.
In fact, in terms of stock price performance, Stellantis is up nearly 50% over the past year while Ford and GM declined 18% and 12%, respectively. Stellantis' 6.5% dividend yield tops Ford's 5.5%, and is well above GM's 1.1%.
What's even more wild, perhaps, is that Stellantis recently shocked some investors by announcing that its electric vehicles (EVs) were in the black not only in Europe, but in the U.S. market as well. That's well ahead of GM, which predicts its EVs to be profitable in 2025, and Ford, which says its EVs will be in 2026.
The automaker has even managed to overtake Tesla for Europe's No. 2 seller of EVs, a feat not to be taken lightly.
If you're looking for a stock that's been beating the market and offers a high dividend yield -- with the potential to pour more capital into the dividend as it curbs costs on its EV lineup faster than competitors -- Stellantis is suddenly and quietly becoming a top option in the automotive industry.
All you can eat
For stable companies with upside, there might be no better list to check than the stocks Warren Buffett owns. Kraft Heinz is one of his top holdings, valued at nearly $11 billion.
Kraft has refocused its growth strategy around three key pillars: Food service, emerging markets, and growth platforms in U.S. retail. The strategy has fueled profitable growth, and that held true in the company's third quarter.
Kraft turned in organic net sales growth of 1.7%, which fueled a 12.9% surge in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and a 14.3% jump in adjusted earnings per share, all compared to the prior year's third quarter. Its price increases also gained traction, pushing adjusted gross margin up nearly four percentage points to 34%.
Going hand in hand with its profitable growth is a focus on improving productivity across its value chain, and then reinvesting back into marketing and research and development. Management has also been diligent on improving the balance sheet and has reached its target net leverage of roughly 3.0.
The upside for income investors is that Kraft trades at a modest price-to-earnings ratio of 15 times earnings, and has a dividend yield of 4.3%. Better yet, as you can see in the graph above, once its profitable growth gains more traction, the company could eventually boost its dividend back up to pre-pandemic levels.
If you build it...
The Home Depot is the world's largest home improvement retailer, with more than 2,300 stores in the U.S., Canada, and Mexico. The upside for investors is that the home improvement sector is also fragmented, leaving big brands such as Home Depot plenty of room for market share growth.
While Home Depot has lagged the broader S&P 500 over the past year, as the company struggled with slowing big-ticket and discretionary categories, it has managed to outperform a key rival.
Lowe's (LOW -0.04%) and Home Depot have much in common, but one slight difference is that the former gets roughly 25% of its revenue from professional contractors, while Home Depot generates roughly 50% of its revenue through those contractors.
Right now, Home Depot's larger focus on professional contractors is paying off. Lowe's same-store sales declined 7.4% during the third quarter, while Home Depot's declined a more modest 3.5%. The story was similar for overall revenue, which dipped 13% for Lowe's but only 3% for Home Depot.
More importantly, at least while you're reading this article, is that Home Depot also has a slight edge in terms of its dividend.
LOW dividend data by YCharts.
Home Depot offers income investors a healthy 2.5% dividend yield, with a history of increases, and is currently performing better than a key rival.
3 strong dividend options
Whether these companies are overlooked due to other juggernauts in their industry, or left for dead during the recent pandemic, all three are quietly performing well and offer healthy dividends to boot.
Savvy investors shouldn't overlook these three dividend stocks any longer, and they at least warrant a second look or a spot on your watch list.
