2 Reliable Dividend Stocks for Your Portfolio

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By: Aquib Nawab

Finance

Historical Performance of Dividend Growth. Over the past 50 years, companies with growing or initiating dividends have achieved an average annual return of 10.24%, outperforming non-dividend payers at 3.95%, and dividend cutters at -0.6%.

The Power of Dividend Stocks

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With 30 consecutive years of dividend growth, Caterpillar (NYSE: CAT) has established itself as a reliable dividend stock. It currently offers a quarterly dividend of $1.30 per share, equating to a 1.8% annual yield.

1 - Caterpillar

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Caterpillar's Strong Financials

Caterpillar maintains a sustainable dividend with a low payout ratio of only 28%, signifying its capacity to sustain dividend payments. Additionally, the company engages in share repurchases to benefit existing shareholders.

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Caterpillar's commitment to shareholders is evident, having returned $4.1 billion to them in the first three quarters of 2023. Management also reaffirms its dedication to returning free cash flow to shareholders through dividends and share repurchases over time.

Caterpillar's Shareholder Returns

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Caterpillar faces potential challenges in the global demand for construction products, particularly as interest rates remain elevated. Order backlogs dipped from $30.7 billion in Q2 2023 to $28.1 billion in Q3 2023, and management anticipates ongoing weakness in China and Europe.

Caterpillar's Market Challenges

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Caterpillar's Valuation

Caterpillar appears undervalued with a current price-to-earnings (P/E) ratio of 17, compared to its five-year average of 18.9.

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Home Depot (NYSE: HD) stock generated a 14% total return over the past year despite slowing sales and profits. Home Depot boasts nearly 37 consecutive years of paying quarterly dividends, with a history of consistent dividend increases since 2010.

2 - Home Depot

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Despite challenges in the housing market and elevated interest rates, Home Depot offers a higher-than-average dividend yield, with a current quarterly dividend of $2.09 per share, equating to a 2.4% annual yield and a payout ratio of 52%.

Home Depot's Dividend Yield

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Home Depot's Share Repurchases

Home Depot actively invests in shareholder value, having reduced shares outstanding by 7.6% over the past three years. In fiscal 2023, management allocated $6.5 billion to share buybacks.

Credits: CNBC

Home Depot navigates a challenging macro environment with sales and earnings guidance for fiscal 2023 expected to decrease by 3% to 4% and 9% to 11%, respectively. However, management remains optimistic about business operations and future growth.

Home Depot's Market Outlook

Credits: Home Depot

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