These 3 Stocks Combine Growth with Dividends for Market Beating Gains


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Investors at every stage of life should have at least some dividend payers among their portfolio of stocks. Younger investors can use them to reinvest and dollar-cost average to compound returns over time. Retirees may want them to support living expenses or choose to invest them back for added growth.

These three companies offer investors dividend yields ranging from 1.5% to 3%. The businesses are in good positions for those payouts to continue and even grow. That underlying business strength also makes these companies good buys even without considering the dividend.

1. Home Depot: Massive share buybacks continue

Back in 2018, Home Depot (NYSE:HD) began a multi-year strategy of investing $11 billion in its physical stores, employees, digital experience, and supply chain. Those investments paid off handsomely in 2020. Home improvement trends during the pandemic helped boost Home Depot's 2020 sales by nearly 20% over 2019, with net earnings growing 16.5%.

The company also boosted its dividend by 10% and announced a new $20 billion share buyback authorization program on May 20, 2021 to replace its existing program. Those signals of future strength came after Home Depot reported fiscal 2021 first-quarter results for the period ended May 2, 2021. Sales soared another 33% year over year, with net earnings more than 85% higher than the previous-year period.

Home Depot CEO Craig Menear said in a statement, “Fiscal 2021 is off to a strong start as we continue to build on the momentum from our strategic investments and effectively manage the unprecedented demand for home improvement projects.” Those aren't just words, as the company backed up its confidence with the massive buyback and dividend boost. The dividend yields about 2% at recent share prices, even after shares have gained 20% year to date. Home Depot still trades at a price-to-earnings ratio (P/E) of about 23, which is actually down 5% from a year ago as earnings have soared.

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2. Brookfield Renewable: The wind at its back

Renewable energy is another sector that showed growth even during the pandemic. It's the only energy source in which demand increased in 2020, according to the International Energy Agency. Brookfield Renewable (NYSE:BEPC) has almost $60 billion of renewable assets in its portfolio, and has more capacity in its development pipeline than it currently generates. The stock provides shareholders with a dividend yield of about 3%.

The company is also expanding its diversity of assets. In its first-quarter 2021 earnings report, Brookfield said it made its first offshore wind power investment after monitoring the sector for several years. As of March 31, 2021, wind made up 28% of its generation capacity, up from 25% on average for the full year 2020. The majority of its capacity is still with hydroelectric sources, with the final balance being mainly solar power at a little under 10%.

Brookfield expects its continued investments of capital to pay off for shareholders. Management aims to provide annual total returns of between 12% and 15%, with dividends growing 5% to 9% annually as part of that total.

3. Target: Another dividend milestone

Target (NYSE:TGT) recently announced a large dividend increase of 32% that will bring its dividend yield to 1.5% at its current share price of about $250 per share. That may not be a huge dividend rate, but the increase marks the 50th consecutive year the retailer has raised its dividend. So at the end of the year, Target will officially become a member of the elite list of Dividend Kings.

The confidence to boost the dividend that amount comes from the company's operating performance. The pandemic contributed to excess sales gains, but Target had set itself up to provide customers with several options. Its digital sales were already rising strongly prior to the pandemic. 2019 was the company's sixth straight year for which Target's comparable digital sales grew more than 25%.

The unique situation in 2020 accelerated that growth, with comparable digital sales soaring 145% over 2019 levels. Management sees recent business strength continuing throughout 2021, albeit at slower rates. Target still expects positive sales growth for the second half of 2021 over the pandemic-inflated third and fourth quarter results from 2020. With a P/E ratio hovering near 20 and business conditions remaining strong, the relatively modest 1.5% dividend yield shouldn't deter interested dividend investors. Five decades of increases should be enough to assure you that there will be more dividend growth to come.

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Howard Smith owns shares of Home Depot. The Motley Fool owns shares of and recommends Home Depot. The Motley Fool has a disclosure policy.

Read more from Howard Smith at Fool.com

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