Bargain Hunters Take Note: 3 Dividend Stocks Worth Buying

Bargain hunters take note, because Daniel Foelber of Motley Fool She has three Dow Jones stocks worth buying that are down 12% to 24% from their 52-week highs. Foelber picks Salesforce, Chevron and Home Depot.

In August 2020, Salesforce was added to the Dow Jones Industrial Average. The move came as a surprise to many, as Salesforce had not yet been consistently profitable and did not pay a dividend at the time. However, the company has since undergone a major turnaround. Salesforce is now highly profitable, has declared a quarterly dividend for the first time this year, and is buying back its own stock heavily.

Salesforce: Employee Compensation Leads to Mitigation

One challenge Salesforce faces is issuing stock as compensation to employees, which can lead to dilution. Over the past 10 years, the number of Salesforce shares outstanding has increased by 54%. But through buyback programs, the company has been able to limit dilution somewhat, with the number of shares outstanding declining by 1% over the past three years.

Salesforce appears to be following a similar strategy to Microsoft, which despite a sharp increase in stock compensation has managed to reduce the number of shares outstanding. Salesforce offers a dividend yield of 0.7%, which seems modest, but that’s just the beginning. With a price-to-earnings ratio of 24.5, the stock is reasonably priced compared to its historical valuations.

Chevron: A Strong Option in the Oil Sector

Despite the strong results, Chevron is currently nearing a 52-week low, largely due to lower oil prices. West Texas Intermediate (WTI), the U.S. benchmark, has been hovering above $75 a barrel this year but has recently fallen below that level.

Although Chevron’s performance is currently not as good as ExxonMobil’s, the stock remains very attractive to investors. Continued dividend increases, coupled with the recent decline in the stock price, have pushed Chevron’s dividend yield to an impressive 4.6%. Over the past two years, Chevron has returned $50 billion to shareholders through dividends and share buybacks, highlighting the strength of its profitability.

One of Chevron’s biggest advantages is that the company can fund its operations and pay its dividends even if oil prices fall to $50 a barrel. This gives Chevron a comfortable margin compared to current oil prices. All things considered, Chevron remains a high-quality dividend stock.

Home Depot: Stronger Than Industry-Wide Slowdown

Home Depot’s growth has stalled, largely because the company is sensitive to fluctuations in the broader economy. So it’s understandable that Home Depot hasn’t posted any price gains this year, given the current economic conditions. During this earnings season, many companies have indicated that consumers are remaining selective in their spending.

The group generally benefits from a strong economy and a thriving housing market. Lower interest rates are good news for the company because they mean lower financing costs and mortgage rates, which is beneficial for renovation projects. Unfortunately, that is not the economic climate we are currently in.

However, Home Depot is a cyclical company that tends to stagnate rather than collapse completely during economic downturns. Over the past decade, Home Depot’s sales have nearly doubled and earnings per share have more than tripled. While Home Depot’s performance may disappoint in the near future, there’s no reason to believe that the fundamental investment case has changed.

Earlier this year, Home Depot made an $18 billion acquisition, indicating the company’s ability to invest regardless of market conditions. Furthermore, Home Depot’s dividends are affordable, with a healthy payout ratio of 57%. With a price-to-earnings ratio of 23.2 and a dividend yield of 2.5%, Home Depot remains a strong, industry-leading company that’s worth buying now.

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