In this article, we discuss 10 best consumer discretionary dividend stocks to buy according to analysts. You can skip our detailed analysis of the consumer discretionary sector and its performance in the past, and go directly to read 5 Best Consumer Discretionary Dividend Stocks To Buy According to Analysts.
Consumer discretionary stocks are highly influenced by market conditions and consumer sentiment. These equities perform exceptionally well during periods of a bullish economy and when consumer spending is high. The S&P 500 Consumer Discretionary had one of the best years on record in 2023, returning over 41%. The index is down by 1.89% this year so far due to wavering consumer confidence. Shopping habits among people have reverted back to normal after the pandemic, which has led to a notable rise in online sales. Wall Street analysts have expressed their confidence in continued consumer spending. According to data from Bloomberg Intelligence, analysts anticipate that revenue and earnings for consumer discretionary companies in the S&P 500 will exceed overall market growth for the second consecutive year in 2024.
This outlook is supported by the sector’s performance in the fourth quarter of 2023. During this period, the average gross margin for both consumer discretionary and consumer staples companies within the Russell 3000 grew to 34%, compared to 31% four quarters earlier, as reported by Bloomberg. In contrast, the average gross margin for firms in the broader index, representing about 98% of investable US equities, slightly rose to 40% from 39% over the same period. The report further referred to data from S&P Dow Jones Indices and mentioned that consumer discretionary and consumer staples companies in the S&P 500 ramped up their share buybacks significantly. Consumer discretionary firms increased their spending by 53%, while consumer staples saw an even larger increase of 80% in Q4 2023. These figures exceeded the average growth of 18% observed for the broader index.
Though the sector has reported losses this year so far, analysts are positive about its performance going forward. Jordan Michaels, a Fidelity Sector Portfolio Manager, suggested that lower inflation and a pause to the Federal Reserve’s rate-hike cycle could prove beneficial for the sector. This could lead to increased consumer willingness to invest in significant purchases like automobiles or homes. In addition to this, the sector may benefit further from an economic scenario where the economy avoids recession and labor markets maintain strength. He further mentioned that there is a potential value in the retail companies within the sector. Here are some of his comments:
“One particular continued area of opportunity has been select retailers. Some of these companies have defensive aspects to their business models, which could provide a degree of insulation if the economic outlook worsens.”
In addition to delivering strong performance in 2023, the consumer discretionary sector also distributed the highest dividends during this period. According to a report by the Janus Henderson Global Dividend Index, the companies in the industry led the way with the highest percentage increase in annual dividends, achieving a notable 26.1% year-over-year growth. The sector showed a 13.7% growth in its dividend payments on an underlying basis, which is also the highest among all the sectors. The report also highlighted that annual dividends in the consumer discretionary sector have grown from $80.7 billion in 2017 to $106.8 billion in 2023.
NIKE, Inc. (NYSE:NKE), McDonald’s Corporation (NYSE:MCD), and Starbucks Corporation (NASDAQ:SBUX) are some of the best dividend stocks from the consumer discretionary sector among others that are discussed below.
10 Best Consumer Discretionary Dividend Stocks To Buy According to Analysts
A side profile of a consumer within a store handing a credit card to a cashier, reflecting the debt collection services of the company.
Our Methodology:
For this list, we scanned the 53 holdings of the S&P 500 Consumer Discretionary Index. From this group, we further refined our selection criteria by identifying stocks with a projected upside potential of over 10% based on analyst price targets, as of April 24. The stocks are ranked according to their upside potential. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 933 funds as of Q4 2023. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
Lowe's Companies, Inc. (NYSE:LOW) is an American home improvement retailer that mainly operates a chain of retail stores across the country. The company pays a quarterly dividend of $1.10 per share and has a dividend yield of 1.92%, as of April 24. In the fourth quarter of 2023, it returned approximately $633 million to shareholders through dividends. In addition to this, the company has been growing its dividends for the past 59 consecutive years, which makes LOW one of the best dividend stocks on our list from the consumer discretionary sector.
At the end of Q4 2023, 68 hedge funds tracked by Insider Monkey reported having stakes in Lowe's Companies, Inc. (NYSE:LOW), up from 63 in the previous quarter. The consolidated value of these stakes is over $3.7 billion.
“During the quarter, we sold our positions in Phillips 66 and Sysco and invested in two new positions: Lowe’s Companies, Inc. (NYSE:LOW) and TotalEnergies.
Lennar Corporation (NYSE:LEN) is a Florida-based home construction company that specializes in the development of single-family and multifamily homes. On April 10, the company declared a quarterly dividend of $0.50 per share, which was in line with its previous dividend. The stock supports a dividend yield of 1.30%, as of April 24. With an upside potential of over 13%, LEN is one of the best dividend stocks to buy according to analysts.
The number of hedge funds tracked by Insider Monkey owning stakes in Lennar Corporation (NYSE:LEN) grew to 65 in Q4 2023, from 63 in the previous quarter. The consolidated value of these stakes is roughly $4 billion. With over 9 million shares, Greenhaven Associates was the company's leading stakeholder in Q4.
The Home Depot, Inc. (NYSE:HD), an American home improvement company, is next on our list of the best dividend stocks with an upside potential of 13.7%. The company offers a quarterly dividend of $2.25 per share, having raised it by 7.7% in February this year. This was the company's 14th consecutive year of dividend growth. Moreover, it has never missed a dividend over the past 148 quarters. As of April 24, the stock has a dividend yield of 2.24%.
In FY23, The Home Depot, Inc. (NYSE:HD) reported a strong cash position with its operating cash flow for the period coming in at over $21 billion, up from $14.6 billion. During the year, the company returned over $83 billion to shareholders through dividends.
As of the close of Q4 2023, 70 hedge funds in Insider Monkey's database held stakes in The Home Depot, Inc. (NYSE:HD), compared with 76 in the preceding quarter. These stakes are collectively valued at nearly $6 billion. Among these hedge funds, Fisher Asset Management was the company's leading stakeholder in Q4.
D.R. Horton, Inc. (NYSE:DHI) is a Texas-based home construction company that develops homes for residential communities. The company currently pays a quarterly dividend of $0.30 per share and has a dividend yield of 0.82%, as of April 24. It is one of the best dividend stocks on our list as the company maintains a 10-year track record of consistent dividend growth.
In fiscal Q2 2024, D.R. Horton, Inc. (NYSE:DHI) reported revenue of over $9 billion, which showed a 14.23% growth from the same period last year. The company's cash generation remained strong as it paid nearly $100 million to shareholders in dividends during the quarter.
D.R. Horton, Inc. (NYSE:DHI) was a part of 67 hedge fund portfolios at the end of Q4 2023, up from 64 in the previous quarter, as per Insider Monkey's database. The stakes held by these hedge funds have a total value of more than $3.7 billion.
General Motors Company (NYSE:GM) ranks sixth on our list of the best dividend stocks from the consumer discretionary sector. The automotive manufacturer currently offers a quarterly dividend of $0.12 per share, growing it by 33% in January this year. The stock's dividend yield on April 24 came in at 1.07%.
General Motors Company (NYSE:GM) was a popular stock among elite funds at the end of Q4 2023 with hedge fund positions jumping to 83, from 66 in the previous quarter, as per Insider Monkey's database. The stakes held by these hedge funds have a total value of nearly $4 billion. With over 35.7 million shares, Harris Associates was the company's largest stakeholder in Q4.
