Home Depot (HD 0.52%) stock is a favorite for many income investors. That's all thanks to qualities like its market leadership position in the home improvement industry and the company's impressive financial strength. Owning this retailer stock today delivers a good chance at capital appreciation as its market recovers, plus immediate passive income in the form of a robust dividend payment.
Yet you might consider a fellow member of the Dow Jones Industrial Average as an even better dividend stock to buy for 2024 and beyond. Coca-Cola (KO 0.17%) is posting better operating trends and should deliver bigger dividend increases in the coming years. Here's why it deserves a higher spot in your dividend watch list than Home Depot.
Coca-Cola's better growth
Coke has Home Depot beat on the key growth metrics that investors like to watch. Its organic sales are on pace to rise by over 10% this fiscal year, for example, while Home Depot is calling for a modest decline in fiscal 2023.
Looking deeper into those growth trends reveals even better news for Coca-Cola shareholders. The beverage giant is boosting both sales volumes and prices right now, suggesting plenty of room for continued expansion in 2024 and beyond. Yet Home Depot's declining customer traffic over the last several quarters implies more demand struggles ahead.
NYSE: KO
Key Data Points
And there's a similarly large performance gap between the two businesses on profit margin, with Coke's 28% profitability sitting at about double Home Depot's rate. The retailer is projecting an earnings decline this fiscal year, likely constraining management's next dividend increase. Coke is expecting to boost profits at a double-digit rate, on the other hand.
Where Home Depot wins
Investors might still prefer Home Depot for its brighter long-term growth outlook. The home improvement industry is likely to expand quickly over many decades thanks to factors like population and income growth and the aging stock of housing. Coke, in contrast, is seeing weaker demand for some traditional carbonated beverages, including diet and sweetened drinks.
Coke investors can indeed expect to see less volatility from year to year due to the company's leadership position in a global consumer staples niche. But those steady gains will likely be eclipsed by Home Depot's long-term growth as its industry expands. The home improvement giant also generates higher annual cash flow, giving income investors confidence in continued increases ahead for the chain's dividend payment.
Price and outlook
Both stocks are valued at about 24 times annual earnings, but you'll get a higher initial yield of 3% with Coke shares versus Home Depot's 2.3% rate. Fans of passive income will love that extra cash flow and they can feel confident that steady raises will continue for many years. Coke has boosted its dividend for more than 60 consecutive years, while Home Depot's streak is sitting at less than 20 years.
Coke's stock ultimately offers an attractive mix of growth and income at a reasonable price. Plus, you can avoid much of the risk involved with owning a company like Home Depot, which is highly sensitive to economic downturns. For income investors who prize stability and predictable dividend growth, Coca-Cola should be a clear favorite in this matchup.
