With the holiday season upon us, investors may want to focus largely on dividend stocks to buy. While growth-oriented names provide the most excitement, market participants must acknowledge reality. As prior monetary policy dramatically expanded the money supply, the Federal Reserve must act aggressively to control inflation. That’s bad for growth but a relative positive for established passive-income-offering companies.
Generally speaking, the enterprises undergirding dividend stocks to buy feature established businesses with strong profitability track records. After all, those dividends must come from somewhere. Further, as some officials suggest that the benchmark interest rate might rise, growth names might become red-shirted in 2023. With limited viable options available, astute investors will likely target these dividend stocks to buy this winter.
| KR | Kroger | $49.34 |
| HD | Home Depot | $322.31 |
| MCD | McDonald’s | $272.48 |
| MDT | Medtronic | $78.48 |
| HPQ | HP. | $29.99 |
| VZ | Verizon | $38.94 |
| DVN | Devon Energy | $68.64 |
Kroger (KR)
Nothing brings out the holiday festivities like good food to share among friends and family. Naturally, then, Kroger (NYSE:KR) offers an excellent narrative for dividend stocks to buy this winter. Aside from the holiday angle, Kroger’s grocery store business also plays into the trade-down effect or the meeting of needs through cheaper alternatives. Stated differently, economic pressures may force those eating at expensive restaurants to cook for themselves, thus bolstering KR.
Regarding its passive income, Dividend.com notes that Kroger features a forward yield of 2.11%. While not the most generous, it does exceed the consumer staple sector’s average yield of 1.89%. Also, the payout ratio – or the proportion of dividends paid out to shareholders relative to net income – is only 24.9%. This implies long-term stability and dependability.
To be fair, Gurufocus.com labels KR as modestly overvalued. However, the market prices KR at 12-times forward earnings, whereas the sector median is 16.4 times. From this angle, then, Kroger brings an attractive proposition as one of the dividend stocks to buy.
Home Depot (HD)
One of the underappreciated holiday plays, shoppers can go to Home Depot (NYSE:HD) for their Christmas trees and similar accoutrements. In addition, the brown stuff hitting the proverbial fan doesn’t abide by artificial human standards. When a pipe breaks, it will break when the laws of physics dictate. Therefore, winter season or not, Home Depot enjoys everyday relevance.
Specifically as one of the dividend stocks to buy, the home improvement retailer features a forward yield of 2.41%. Again, it’s not the most generous yield, though it does beat the sector’s average of 1.89%. Furthermore, Home Depot has increased its dividend 142 times. Therefore, while the payout ratio is on the “warm” side of things at 44.8%, it offers reliable passive income.
Even better, according to Gurufocus.com’s proprietary calculation of fair market value (FMV), HD rates as modestly undervalued. Against traditional financial metrics, Home Depot’s return on asset is 22.8%, beating out over 97% of the competition. This also reflects a very high-quality business.
McDonald’s (MCD)
No matter what your belief systems, the winter season centers on the importance of family. In that respect, the coronavirus pandemic and the catapulting of work-from-home initiatives essentially created a two-year holiday season. However, with perhaps most companies scheduled to bring back workers to the office in 2023, McDonald’s (NYSE:MCD) might be an underappreciated beneficiary.
As a CNBC report pointed out, people returning to the office provided strong demand for breakfast products even as they cut back on other expenditures. Now, this report came out in late August of this year. Imagine, then, that say 90% of workers were forced to return to the office at least part of the time. Not only that, these folks wouldn’t have much of a choice if they want to save their jobs in a recession.
Fundamentally, this dynamic augurs well for MCD as one of the dividend stocks to buy. Currently, it features a forward yield of 2.24%. In addition, the Golden Arches enjoys 45 years of consecutive dividend increases, a status management will want to keep.
Medtronic (MDT)
A medical device company, Medtronic (NYSE:MDT) may provide a feel-good narrative for the holiday season. Among its many products, Medtronic features solutions for diabetes patients, enabling these folks to effectively manage their condition. Again, with the winter months putting a focus on family, MDT offers something to think about.
To be fair, though, prospective participants must own a contrarian spirit. Several days ago, Medtronic delivered disappointing results for its fiscal second-quarter sales, citing slower procedure and supply recovery. As a result, management lowered its earnings forecast for the year. Still, at some point, its core markets will likely recover. When they do, MDT may offer substantial upside.
For now, the company ranks among the dividend stocks to buy this winter. Per Dividend.com, Medtronic features a forward yield of 3.56%. This rates conspicuously higher than the healthcare sector’s average yield of 1.58%. While the payout ratio is on the higher side at 51.4%, MDT also commands 45 years of consecutive dividend increases.
HP (HPQ)
When you’re dealing with consumer electronics, particularly hardware providers like HP (NYSE:HPQ), its upside narrative presents risks. Unfortunately, consumer sentiment ranks poorly at the moment, imposing potential headwinds on HPQ. Nevertheless, the underlying company represents one of the dividend stocks to buy for its potential to positively surprise onlookers.
Recently, statements by Federal Reserve officials suggest that the central bank might sustain aggressive interest rate hikes. If so, the previously rising labor market may come under fire. And that may force employees to encounter an ultimatum: return to the office or quit. Some folks will choose the latter, which then boosts the gig economy. In turn, the rise of white-collar independent contractors may catalyze demand for HP’s computer products.
Admittedly, it’s a narrative that requires multiple stars to align but it’s within the realm of possibility. Further, the company provides a forward yield of 3.64%. This ranks well above the technology sector’s average yield of 1.37%. Also, HP’s payout ratio is 31.5%, which is very healthy. Thus, it’s one of the dividend stocks to buy this winter.
Verizon (VZ)
As a telecommunications specialist, Verizon (NYSE:VZ) enjoys an obvious play as a holiday-related enterprise. Again, the season centers on connecting with loved ones, fitting right into Verizon’s core business offering. To be fair, though, VZ stock has seen better days. Since the start of the year, shares fell nearly 27%. If that wasn’t enough of a warning, Gurufocus.com warns that Verizon represents a possible value trap. For instance, while the market prices VZ at only 7.6-times forward earnings, the company’s three-year revenue growth rate pings at 0.5%. That’s rather pedestrian, making the prospect of the company hitting its income-statement-related performance targets rather suspect.
Still, if you’re looking for dividend stocks to buy, Verizon may appeal to speculators. According to Dividend.com, the company carries a forward yield of 6.8%. This ranks much higher than the communication sector’s average yield of 2.62%. Also, the enterprise commands 17 years of consecutive dividend increases, a status management won’t give up without a fight.
Devon Energy (DVN)
One of the hottest performers among dividend stocks to buy, Devon Energy (NYSE:DVN) benefitted from a relevancy surge. Specializing in hydrocarbon exploration, Devon represents one of the leading independent oil and gas firms. Fundamentally, this fact alone should draw intrigue among forward-thinking investors.
According to data from the U.S. Energy Information Administration, households in the nation are likely to spend more this winter than in previous cold seasons. One of the factors involved centers on slightly colder weather this year than last. Cynically, this dynamic might help boost DVN, even though shares already jumped more than 48% on a year-to-date basis.
Devon features a current yield of 6.81%, which rates very generously compared to the energy sector’s average yield of 4.2%. Also, the payout ratio, while high at 59%, isn’t egregiously so. Still, a recent payout decrease means that Devon is back to square one regarding its consecutive dividend track record.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.