Investors often buy growth stocks because of the capital appreciation they provide, but adding a dividend to the mix can increase a portfolio’s returns.
Finding the right mix of a solid business offering a very attractive source of income is not always easy, but Best buy (NYSE: BBY), Hanesbrands (NYSE: HBI), and Leggett & Platt (NYSE: LEG) are a winning trio of stocks that investors should consider for their portfolios.
An insanely good dividend payer
Eric Volkman (Best Buy): Best Buy isn’t recognized as a dividend-paying stock, and that’s a little unfair. The electronics retailer has been distributing a regular quarterly payment for longer than many competitors, initiating it in early 2004 and distributing it without fail quarterly since (yes, even during the financial crisis of the late 2000s, and in the inside the coronavirus pandemic).
The company is the best-in-class tech retailer because it’s tough and adaptable. It’s one of the great business stories of our time, with many investors and pundits vying for the business in the early 2010s. These were dark days for Best Buy, with its resignation. former CEO following an internal investigation into personal misconduct, erosion of market share by aggressive online retailers like Amazon, and declining sales.
When new leader Hubert Joly took on the role of CEO in 2012, the situation began to change rapidly.
In order to counter the practice of “showrooming” which plagued the trade of traditional retailers, Joly introduced a price matching guarantee which remains to this day. This naturally threatened the margins, which the new CEO compensated with significant cost cuts. After a net loss of nearly $ 1.4 billion, under generally accepted accounting principles (GAAP), in 2012 and a much smaller deficit of $ 249 million the following year, Best Buy reported annual net profit since then.
Nowadays, driven by intelligent management measures, the company is a monster of growth and profitability. For example, earlier this year it announced its own version of the trendy retailer membership plans with Best Buy Beta. This not only provides the standard free expedited shipping standard throughout the industry, but also includes important benefits such as automatic two-year warranty protection on selected items and an extended 60-day return window for its merchandise. .
While recent results are a bit skewed by the 2020 weakness all retailers have experienced due to the pandemic, Best Buy has done very well in its final quarter. Its sales in the first quarter of fiscal 2022 reached nearly $ 12 billion, which was not only 37% more than the coronavirus-dampened first quarter 2021, but also surpassed the first quarter of 2020. of the company’s 27% still impressive. These 2010 earnings losses are fading away, as net income for the quarter more than tripled to $ 595 million.
Best Buy surely has more growth, given the continuous upgrade cycle of its most popular product categories (smartphones, video game consoles, TVs, etc.) and the fact that it is the electronics retailer. benchmark for millions of consumers. As the business grows, this dividend is expected to increase accordingly – in fact, the company’s free cash flow in fiscal 2021 was over $ 4.2 billion, much more. than enough to cover the $ 568 million it spent on dividends.
This outsider could be a champion
Keith Noonan (Hanesbrands): The negative impacts that the pandemic has had on the retail space are fairly well documented at this point. Hanesbrands was able to adapt better than many other players in the industry thanks to a quickly orchestrated pivot to produce face masks and protective clothing, but it was only a temporary decision, and the company had to face many other persistent challenges facing its industry. Even with the headwinds, Hanesbrands managed to put in quite an impressive performance, and it appears the market is underestimating the company’s growth potential.
The clothing company was able to grow sales 13% year-over-year in the second quarter, and sales for the period were also up 15% from the 2019 quarter. The Company’s Champion really stood out, with worldwide sales increasing 120% from the period of the previous year and 21% from the second quarter of 2019. The popularity of the Champion brand has helped l company to accelerate its direct development. Distributing to consumers through physical and online retail channels, Hanesbrands has a hot sales growth engine that can also help steer the business towards better margins.
Better yet, the stock appears to be priced cheaply, trading at around 11 times this year’s expected earnings and posting a 3.1% dividend. Investors who prioritize reliable short-term payout growth will likely be disappointed to learn that the company’s payout has been stable since 2017, but management remains committed to paying regular dividends as a critical component of the payout. shareholding, and there is a possible path for significant growth in payments in the not-so-distant future. Hanesbrands will make its 34th consecutive quarterly dividend payment at the end of this month, and management has indicated that it plans to start generating dividend growth again as profits rise.
Hanesbrands may seem relatively boring compared to Nike and other category leaders, but the oft-overlooked stock has an attractive return income component and ways to crush market expectations.
Giving investors a head start
Rich Duprey (Leggett & Platt): Consumers often buy products based on the brand of the company that sells them, whether it’s a smartphone, an electric car, or even a piece of furniture. Most of the time, they don’t think about what components go into the product and where they come from.
These types of businesses that support brands are hidden from view, but can be rewarding long-term investments because they are so critical to the success of the brand business up front. This is the case with Leggett & Platt, a manufacturer of engineered components and products that can be found in most homes, offices and automobiles.
Chances are, if you are a person who sleeps in a bed, you are probably using their products. This is because Leggett & Platt is the leading manufacturer of coil springs for mattresses and sofas, as well as exclusive specialty foams for the bedding and furniture markets.
Its components can also be found in the automotive and aerospace industries, furniture manufacturers, and flooring and textile companies.
Founded in 1889, Leggett & Platt has a long history of returning shareholder value through a dividend that currently earns 3.4% per annum. Since increasing the payout every year since 1971, he’s been a member of a group of companies called Dividend Kings, or stocks that increase their dividends every year for 50 years or more.
Leggett & Platt says maintaining its place on this list of rarefied stocks is essential, and that it holds one of the best dividend growth records for any stock in the market. S&P 500.
So Leggett & Platt is not what you would think of as your typical retail stock, but because its components are the backbone of many essential products that you can buy in stores and online, investors may be on the lookout for it. Comfortable assuming that this stock’s hefty dividend will reward them for years to come.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.Source link