Having cash regularly deposited in your account from dividend stocks is a great feeling. It not only helps ease the sting of market volatility, but it can also help you build up a nice stream of income when you really need it in retirement.
The S&P 500 average yield is currently at a multi-year low of 1.22%, but there are solid businesses offering much higher yields right now. Here are two stocks offering yields above 2% with excellent prospects to grow their dividend over the long term.
1. Home Depot
Home Depot(NYSE: HD) has been a solid growth stock for many years. The leading home improvement retailer has paid a dividend for 37 consecutive years. Over the last five years, the dividend has grown 65%, bringing the current quarterly payment to $2.25 per share.
Home Depot reported a slight decline in comparable store sales in Q3, as spending on large remodeling projects remains underwater. The stock has moved higher despite the weak sales performance, as recent home buying activity has started to show signs of turning the corner. If this trend continues into 2025, Home Depot may see comparable sales return to growth.
As the leader in home improvement, Home Depot benefits from massive scale with a large store base and extensive supply chain. Its wide selection has made it a go-to store for home projects. Management has been investing to expand its same- and next-day delivery service, highlighting its ability to invest in future growth even during a period of weak sales.
Revenue and earnings should continue to grow and fund increasing dividend payments, considering the company is going after a $1 trillion home improvement market. Home Depot generates a high return on invested capital above 20%, which means it should deliver solid earnings growth as it invests additional capital to expand operations and tackle this growth opportunity.
The company paid out 60% of its trailing earnings in dividends, bringing the forward dividend yield to 2.19%. With an above-average yield, the stock offers solid value and should hit more new highs as the housing market recovers.
2. Nike
Nike(NYSE: NKE) is the largest sportswear brand with $50 billion in trailing-12-month revenue. A weak consumer spending environment has hit the brand hard in 2024, with the company recently bringing back company veteran Elliott Hill to be its new CEO. With the stock offering its highest dividend yield since 2009, this could be a great buying opportunity, as the hiring of Hill could be a key catalyst for Nike to return to growth and achieve its full potential.
Nike stock has been cut in half from its previous peak. Revenue was down 10% year over year in the most recent quarter, and the consensus Wall Street estimate expects full-year revenue to be down about 8%. The turnaround won't happen overnight, but management is aggressively tackling the problem and making adjustments to its product pipeline to improve sales.
One bright spot in the last earnings report was strong sales of running shoes, which has been at the heart of Nike's innovation going back decades. "The order book looking forward is strong with spring '25 footwear units set to grow double digits versus the prior year," CFO Matthew Friend said on the recent earnings call.
Meanwhile, the dividend is well-protected by a relatively low payout of the company's earnings. Nike is paying out 40% of its trailing earnings in dividends, so it can continue to maintain its dividend and grow it even during a weak sales period. In fact, the company recently increased the quarterly dividend by 8% to $0.40 per share.
Analysts expect the company to report full-year adjusted earnings per share of $2.74 -- down from $3.73 last year. But Nike also earns a high return on invested capital of 22%. With the athletic wear industry expected to grow from $213 billion in 2023 to $294 billion by 2030, according to Statista, Nike has plenty of opportunities to deliver returns to shareholders.
The recent dip could be a timely buying opportunity. Nike grew its dividend 51% over the last five years and should continue to reward shareholders for many years.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Nike. The Motley Fool has a disclosure policy.
