Coca-Cola and These 2 Red-Hot Dow Dividend Stocks Are Up 10% to 22% in 3 Months, and They Could Still Be Worth Buying in October
At the start of 2024, the broader indices were driven higher mostly by massive growth stocks. But market leadership has changed in recent months, with large-cap earnings and value stocks posting significant gains.
For example, Nvidia It has fallen by 3.1% over the past three months Standard & Poor’s 500 It rose by 3.2% and Dow Jones Industrial Average It rose by 7.1%. Meanwhile, Dow Jones components coca cola (NYSE: KO), Home Depot (NYSE: HD)and McDonald’s (NYSE: MCD) She is more than that.
That’s why these three blue chips Dividend stocks It could be strong buys in October for people looking to generate passive income.
Coca-Cola is back to growth
Coca-Cola is an excellent example of why a slow, low-growth company can be a great investment when it goes beyond investors’ exceptions.
Coca-Cola is a well-established and mature company with a global beverage portfolio. Investors are likely to Attracted towards buying and possessing cola Stocks for consistent earnings and dividend growth, and because they can deliver results regardless of what the economy or the rest of the stock market does. For this reason, Coca-Cola doesn’t have to provide rapid double-digit earnings growth to impress investors — it just has to grow its earnings enough to reasonably justify a dividend increase while maintaining a strong balance sheet.
Given that Coke’s last dividend increase was a healthy 5.4% increase and the company is expected to report record profits this fiscal year, it’s understandable why the stock has tanked in recent months.
After its sales declined during the height of the pandemic, Coca-Cola has done an excellent job of weathering inflationary pressures. The company’s pricing power is on full display as it continues to make the most of its growing portfolio of soft drinks, coffee, tea, juice, energy drinks, water and sparkling water.
The rise in Coca-Cola’s stock price has reduced its yield to 2.7% and pushed its price-to-earnings (P/E) ratio above historical levels. However, Coca-Cola is well positioned to maintain high margins and pass profits on to shareholders.
Coca-Cola could pull out due to valuation concerns. However, the underlying business is in excellent shape, suggesting that Coke remains a good buy for long-term investors looking for reliable dividend stocks.
The worst of Home Depot’s decline may be coming to an end
Home Depot’s results have been relatively weak in recent years. In the company’s most recent report, it lowered its full-year guidance, anticipating lower sales and profits in fiscal 2024 than in fiscal 2023. Despite the bleak outlook, Home Depot has been one of the hottest stocks in the Dow Jones in recent months, and it has just exploded to New all-time high on October 2.
The two biggest factors likely to push Home Depot higher are that it has been a cheap dividend stock in an expensive market, and that low interest rates could be a boon for the housing market and, by extension, the home improvement market. As you can see in the following chart, Home Depot’s P/E ratio was close to its five-, seven-, and 10-year average levels, but has since risen in tandem with its stock price.
Lower mortgage interest rates could lead to an uptick in consumer spending, benefiting Home Depot’s future results. But it’s worth understanding that the rise in Home Depot shares is not based on what the company did, but on what it could do under more favorable economic conditions.
Given its expensive valuation, Home Depot isn’t a compelling buy anymore. However, it can be a good stock to buy and hold for the long-term dividend.
The company has a track record of growing its earnings and profits at impressive rates and investing during the cycle. Home Depot made a massive $18 billion acquisition earlier this year — one of the largest in its history. I did this with the understanding that the move might take some time to bear fruit. There aren’t many companies that can achieve this much success during an industry downturn.
With a dividend yield of 2.2%, Home Depot could still be a good buy for investors who like the company’s strategic decisions and believe it could serve as a coiled spring for a recovery in the housing market.
A healthier consumer would be excellent news for McDonald’s
In July, McDonald’s was approaching a 52-week low. Investors became concerned that the company was losing pricing power and customers were gravitating toward more affordable options. But McDonald’s is up nearly 20% in the past three months, hitting a new 52-week high.
The move may indicate that McDonald’s has turned a corner. But management is not confident about the company’s near-term prospects. People are still selective in their purchases, and low interest rates are unlikely to change this behavior overnight.
It’s also worth understanding that McDonald’s is not a company that should be evaluated based on traditional metrics like price-to-earnings ratio, because only 5% of stores are company-owned and operated. The franchise business model can lead to inconsistent profits, so it’s best to look at McDonald’s revenue and operating margin over a long period of time.
As you can see in the chart, McDonald’s sales have rebounded from pandemic lows, and the company’s margins have increased, suggesting it has plenty of room to cut prices if necessary, or extend promotions like the $5 meal deal.
With McDonald’s, investors seem to be taking a long-term view of the stock and looking at what the company will be like at least a year from now, rather than where it is today.
Another catalyst that could push the stock’s movement higher is China. China recently announced a stimulus package aimed at boosting economic growth and boosting consumer spending. Given its presence in the country, a potentially stronger Chinese economy is great news for McDonald’s.
McDonald’s is no longer the buzzy buy it was a few months ago, but it still stands out as a worthwhile dividend stock to buy now. McDonald’s recently raised its dividend 6% to $1.77 per quarter, or $7.08 annually – representing a forward yield of 2.3%. That’s not a bad source of passive income, when you take into account that the S&P 500 only returns 1.3%.
3 sensible buys for long-term investors
Coca-Cola, Home Depot, and McDonald’s are three great companies that were bargains but have seen their stock prices skyrocket in a relatively short period. Any time a stock makes a big move based on expectations, it puts pressure on the company to deliver or face a decline in its stock price.
While the three companies are not as good a bargain as they were earlier in the year, they are not necessarily overvalued for investors looking for blue-chip dividend stocks. In fact, they’re the exact type of company investors can count on to persevere through a recession.
If you’re willing to invest in quality, it might be wise to evaluate the three stocks more closely, keeping in mind that the current rally may soon subside.
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Daniel Fulber He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Nvidia. The Motley Fool has Disclosure policy.
Coca-Cola and Dow Jones Stocks Gain 10% to 22% in 3 Months, May Still Be Worth Buying in October Originally published by The Motley Fool
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