Get paid to own shares of these powerhouse companies.
Investors who are looking to boost their passive income have come to the right place. There are several solid companies trading at reasonable valuations and offering above-average dividend yields right now. Here's why three Motley Fool contributors like Kraft Heinz (KHC -1.93%), Home Depot (HD -0.74%), and Realty Income (O -0.26%).
A high-yielding food stock
John Ballard (Kraft Heinz): The high inflation environment over the last few years has weighed on Kraft Heinz sales and stock performance. The stock recently was down 14% over the last three years, but it could be a great value, as evidenced by its high dividend yield.
Besides owning the Kraft and Heinz brands, it owns several others, including Philadelphia, Lunchables, Jell-O, Maxwell House, Oscar Mayer, and Velveeta. These are valuable brands that give Kraft Heinz a lot of opportunity to drive long-term growth from new products and marketing. But the weak consumer spending environment has caused lower-income families to shift their spending toward value-oriented products on the grocery shelf.
To compensate, Kraft Heinz is expanding its product lineup to offer more value to consumers. Management expects to generate $2 billion in additional sales from product innovation.
Meanwhile, Kraft Heinz continues to return cash to shareholders. The business paid 69% of its earnings per share in dividends over the last year, so it should be able to maintain its current payout even if earnings were to decline from a bad year.
However, investors should expect earnings to grow based on management's focus on profitable capital allocation within the business. For what it's worth, Wall Street analysts expect Kraft's earnings per share to reach $3.38 by 2026.
At the current quarterly dividend payment of $0.40 per share, the stock's yield is 4.74%. The combination of a high yield and low valuation, as noted by a low price-to-earnings multiple of 11 on this year's earnings estimate, makes the stock a great value at these share prices.
The housing market will come back
Jeremy Bowman (Home Depot): Wall Street is already stirring with new hope that interest rates will come down. Following a softer-than-expected June inflation print, bets are increasing that the Federal Reserve will soon cut interest rates, beginning a campaign that will lower mortgage rates and revive the sluggish housing market.
Fed Chair Jerome Powell told Congress earlier this week that recent inflation readings add "somewhat to confidence" that inflation was returning to its target of 2%. That pattern combined with a weakening labor market should encourage the central bank to ease interest rates, and traders now see a 100% chance of a rate cut in September.
That's good news for Home Depot as the home improvement retailer's business is highly correlated with the housing market, and rising interest rates have put the brakes on home-related spending. Demand should also get a boost from falling lumber prices, which could spur spending on new homes and home improvement projects as lumber is a key input in the housing market.
While home purchases have cooled, Home Depot hasn't been asleep at the wheel. The company has been repurchasing stock, which will drive earnings per share higher, and it acquired building materials distributor SRS Distribution earlier this year for $18 billion, including debt, which will strengthen the company's position in the pro market, a bonus as the real estate market strengthens.
Finally, Home Depot has a long history of rewarding investors with dividend hikes, and it currently offers a 2.4% dividend yield, significantly better than the S&P 500.
If you're looking for a long-term winner with strong competitive advantages that's well-positioned to benefit from cyclical tailwinds and raise its dividend, Home Depot could be a great choice.
A monthly dividend with a long track record
Jennifer Saibil (Realty Income): Realty Income calls itself "The Monthly Dividend Company," and it's one of few companies today that pay a dividend every month. That's a perk for passive income investors, but there's so much more to love about Realty Income's dividend.
First is the yield, which is often shareholders' biggest concern. Realty Income's dividend yields 5.4% at the current price, or more than four times the S&P 500 average. It also has an incredible track record of paying 649 consecutive dividends, which translates into more than 54 years' worth, with 107 consecutive quarterly increases.
The dividend wouldn't mean much if it wasn't backed up by a solid business, and Realty Income's is as strong as any real estate investment trust (REIT) could be. It used to have more of a concentration in essentials companies, but it's diversified to conclude a wider set of industries. The advantage of diversification is that it has less exposure to problems in any particular one.
In any case, essentials still account for the lion's share of its tenants. Its top three tenants are Dollar General, Walgreens, and Dollar Tree, and grocery stores account for 10.1% of its total portfolio annualized rent. But instead of accounting for all of its properties, retail is now 79.6% of the total portfolio, with a strong showing from industrial and some gaming.
Realty Income is one of the largest REITs in the world, with more than 15,000 properties, but it has plenty of cash and buying opportunities to grow the business and keep up the dividend.
Plus, you can still buy Realty Income stock at a discount today, making it a real no-brainer dividend stock choice. It's down 15% over the past three years as real estate stocks have plunged in the high interest-rate climate. This is an excellent time to scoop up shares of this forever dividend stock.
Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Realty Income. The Motley Fool recommends Kraft Heinz. The Motley Fool has a disclosure policy.
