After a historically bad performance during the first half of the year, dividend stocks have come under quite a bit of scrutiny lately. A new Bloomberg analysis of the dividend stock underperformance in 2023 observed, “Investors wanted exposure to companies with a history of paying out profits as a precaution amid the Federal Reserve’s most aggressive tightening cycle in 40 years. Instead they were saddled with underperforming companies that proved especially vulnerable when yields shot higher.”
Clearly, dividend stocks are facing a tough time in this market. However, it's worth pointing out that there are still some names in the group that combine consistent dividend income with steady growth. Here, we've highlighted three of those names - all top-rated by analysts, with room for upside in the year ahead.
Domino's Pizza
Domino's Pizza (DPZ) is a name synonymous with success in the pizza industry, boasting more than 20,000 locations worldwide. Founded in 1960, Domino's has evolved into a global powerhouse in the fast-food sector, with a market capitalization of approximately $12.91 billion.
Particularly noteworthy is the company's quarterly dividend of $1.21 per share, for a forward yield of 1.31%. Domino's has raised its dividend consistently for a decade, with a very sustainable payout ratio of 32% - indicating a strategic balance between rewarding shareholders and reinvesting in the business. With $80.9 million in cash and equivalents and a robust free cash flow of $362.9 million, Domino's financial resilience is evident.
Innovation is also at the forefront of Domino's strategy. Its partnership with Microsoft (MSFT) for AI-driven solutions, in-store logistics, and personalized ordering indicates a commitment to technological growth alongside income generation.
In 2023, Domino's Pizza stock has gained just about 13%. That's not quite on pace with the broader S&P 500 Index ($SPX), but it's considerably better than some of the broader dividend stock benchmarks.
In the most recent quarter, Domino's reported adjusted earnings of $4.18 per share, which topped expectations - even as revenue of $1.03 billion fell slightly short. Looking ahead, analysts are targeting 15% EPS growth for this fiscal year, followed by roughly 9% for FY 2024.
Domino's Pizza has an average "Moderate Buy" rating from 25 analysts, with 14 of those calling it a “Strong Buy." The average 12-month price target of $406.30 implies expected upside of 5% from current levels.
Home Depot
Founded in 1978, Home Depot (HD) is a major player in the home improvement retail sector, and operates over 2,300 stores across North America. The retailer caters to a diverse clientele, including DIY enthusiasts and professional contractors.
In 2023, Home Depot's stock is slightly negative on the year - lagging both the S&P 500 and the Dow Jones Industrial Average ($DOWI) - due to unfavorable macroeconomic trends and sector-specific issues that pressured both housing and retail.
Home Depot has increased its dividend annually for 14 years, and the quarterly payout now stands at $2.09 per share, offering a forward yield of 2.69%. The payout ratio stands at just 13%, indicating plenty of room for future dividend growth.
In fact, income investors will note that HD's cash from operations rose by 49% to $4.23 billion in the latest quarter, highlighting the company's effective cash management.
Meanwhile, quarterly EPS of $3.81 and revenue of $37.71 billion both topped analysts' expectations. On average, Wall Street expects HD to return to EPS growth in fiscal 2025.
The stock is a "Moderate Buy" among the 27 analysts in coverage, with 15 “Strong Buys,” 1 “Moderate Buy,” and 11 “Holds.” The average 12-month price target of $336.32 represents a premium of 8% to current levels.
AbbVie
Chicago-based AbbVie Inc. (ABBV) started out as a spin-off from Abbott Laboratories (ABT) in 2013. Specializing in pharmaceutical research and development, AbbVie focuses on immunology, oncology, neuroscience, and virology. The company's portfolio includes top drugs such as Humira, Skyrizi, and Rinvoq. Its growth strategy encompasses in-house innovation and strategic acquisitions, including the 2020 purchase of Allergan, which expanded its range to medical aesthetics.
In 2023, AbbVie's stock is down about 10% on the year, due in large part to declining sales of its key drug, Humira - which faces stiff competition from biosimilars after losing patent protection. The broader market volatility and rising interest rates have also impacted AbbVie's stock.
Despite these challenges, including a decline in Botox sales, AbbVie remains fundamentally robust, with a diverse product portfolio and significant investment in research and development. In the third quarter of 2023, ABBV reported adjusted earnings of $2.95 per share, while revenues declined by 6.0% to $13.93 billion. The results topped Wall Street's expectations, continuing a trend of bottom-line beats for ABBV.
AbbVie stands out with a strong dividend record, offering a quarterly dividend of $1.55 per share, backed by over a decade of growth. The forward yield is 4.47%, with a balanced payout ratio of 49%.
The average analyst rating for AbbVie is a "Moderate Buy," with 8 “Strong Buys” and 2 “Moderate Buys" outweighing 8 “Hold” ratings. The average 12-month price target of $171.81 implies expected upside of 23.5% from current levels.
