Investors are starting to pay attention to yield signs these days, but not the ones you see on the road. Income-generating stocks may not have the same appeal as they used to, with safer money market funds often yielding better than 5% right now, but it wouldn't surprise anyone if folks begin bidding up dividend-paying companies as soon as short-term rates start falling.
Pesky inflation data is likely delaying the Fed's plans to cut rates, but when it does happen, you're going to find dividend stocks -- especially ones that historically push up their payouts -- more inviting. Even if you have a modest amount of money to put to work, Costco Wholesale (COST +1.08%), Disney (DIS 1.19%), and Cracker Barrel Old Country Stores (CBRL 2.66%) are worth investigating. Let's see why these could be the smartest dividend stocks to buy with your next $400 investment.
NASDAQ: COST
Key Data Points
1. Costco
You know Costco, even if you have never set foot in any of its warehouse clubs. Costco is a combination of mesmerizing extremes, but none more tantalizing than its low prices and long lines. Good luck finding another retailer or even a grocery store with a gross margin as low as Costco's 12.6%.
Investors tend to shy away from low-margin stocks, but this is the appeal of Costco. It barely marks up its merchandise to pass on the savings to its shoppers, and in return, folks willingly pay annual membership fees to keep coming back.
Costco is huge. It has generated $248.8 billion in revenue over the past four quarters.
Comparable-store sales tend to hold up in most economic climates, up a hearty 7.7% in March with e-commerce sales soaring 28.3%. It's probably not the first name you think about when you start sizing up income-generating investments, given its 0.6% yield. But sometimes, the best dividend stocks aren't the ones with the chunkiest distributions.
Image source: Getty Images.
When the warehouse-club operator hiked its quarterly dividend rate 14% last week, it didn't generate a whole lot of excitement. The stock is trading lower now, and that's fair. All the hike did was push its yield up from 0.5% to 0.6%.
However, the company tends to announce meatier one-time distributions every few years. A special dividend of $15 a share declared near the end of last year means that it paid out $18.96 a share last year -- a 2.6% yield -- but it will probably take a few more years before another one-time disbursement is made.
Costco's rewards come from its long-term performance. The stock is up 50% in the past year, 102% through the past three years, and 227% over the last five years. You won't find distributions as rich as the capital appreciation that Costco has been able to consistently deliver, and if you do, it likely came at the expense of that stock heading lower during that time. Even with a new CEO, Costco should continue to be a steady winner for dividend investors willing to think outside of the yield box.
NYSE: DIS
Key Data Points
2. Disney
Another low-yielding household name I like is Disney. The media giant suspended its semiannual payouts when the pandemic sucker punched many of its businesses, but the House of Mouse finally reinitiated its distributions in November 2023. It's apparently making up for lost time, already boosting its payout by 50% for the next dividend that will go out this summer.
Like Costco, Disney's checks aren't going to wow you. It's a 0.8% yield with the new rate. However, Disney is a stock that has the potential to take big steps on the capital appreciation front. The company is cutting costs to the point that it sees Disney+ -- the flagship service of its streaming business that collectively posted a $4 billion operating loss in fiscal 2022 and a $2.6 billion deficit in fiscal 2023 -- turning profitable by the end of this year.
Along the way, you have a more promising slate of theatrical releases in 2024 than the lineup that often fell flat in 2023. Its theme parks continue to thrive, and Disney's doubling its investments to make those gated attractions and its growing fleet of cruise ships much more of a magnet for tourist dollars.
NASDAQ: CBRL
Key Data Points
3. Cracker Barrel
If you need a chicken-dumpling-sized payout to get you going, consider Cracker Barrel. The chain of rustic restaurants specializing in comfort food with attached gift shops is currently yielding a whopping 8.7%. It's been able to continue with its generous payouts despite a rocky financial performance and declining share price.
Cracker Barrel isn't likely to deliver the kind of capital appreciation that investors may see from Costco or Disney, but there's a potential turnaround here. The stock is relatively cheap, trading at just 13 times this year's adjusted earnings estimates.
The company's strategy of placing its throwback restaurants off major highways with a lot of traveler and tourist traffic makes it more vulnerable to the economy than other casual-dining chains. However, if the economy holds up and Cracker Barrel can vanquish its cost challenges, it could be more than just the healthy dividend checks it's currently serving up every quarter.
