The Dow Jones Industrial Average is a great place to go shopping if you're an investor seeking passive income. This collection of 30 of the world's largest publicly traded businesses is packed with companies that have stellar track records for earnings growth. Their dividend yields provide instant cash returns, too, with a high chance of steady annual hikes on the way for many years into the future.
It doesn't take a very large investment to start to build that income stream, either. With a $15,000 investment split about evenly between Walmart (WMT +0.29%) and Home Depot (HD 1.35%), for example, you'd receive about $300 annually, or 2% on your cost. Here's why that's an attractive option for dividend stock investors today.
Walmart is well-positioned
Walmart's dividend yield is relatively small at 1.5%, but don't let that issue scare you away from this stock. The retailer is checking all the right boxes for investors, after all.
Sales growth was a healthy 5% year over year in the most recent quarter, putting it well ahead of peers like Target. Shoppers are more focused on saving money and on buying consumer essentials like groceries these days, and that trend favors Walmart's focus on value.
NASDAQ: WMT
Key Data Points
Look beyond the headline numbers and there's even better news for this retailer. Walmart's customer traffic is solidly positive, and shoppers are spending more with each visit. Profit margins are improving as well. Sure, Walmart's executive team had some cautious comments about short-term growth trends. But its slim inventory holdings and strong traffic trends mean it has a good chance of continuing its positive momentum into 2024 and beyond.
Home Depot will bounce back
It's understandable that Home Depot stock would trail the market this year as rising interest rates have slowed the housing market. The company has been through many previous downturns, though, including the Great Recession. It emerged from each of these slumps to set new sales records, though. Look for another such rebound ahead, potentially starting in 2024.
NYSE: HD
Key Data Points
Home Depot is expecting comparable-store sales to drop by between 3% and 4% this year, roughly consistent with the declines expected by peer Lowe's. Yet profits will remain strong.
Home Depot's operating margin is on track to stay above 14% of sales. Home Depot is also one of the market's most efficient businesses when it comes to return on invested capital. That's a sure sign the management team is good at allocating excess cash, whether that means more investments in the e-commerce infrastructure, stock buybacks, or a rising dividend.
Home Depot aims to return 55% of annual earnings to shareholders in the form of dividend payments. That's more generous than Lowe's 35% goal and is one reason why its yield is so high.
Sure, the dividend stock might underperform if the economy tilts into a recession in the coming quarters. But that's a normal part of the retailing world. Income investors can look past those short-term swings to focus on Home Depot's bright future as it keeps capitalizing on its dominant position in the attractive home improvement industry.
