Wall Street fell in love with technology stocks in 2024, choosing to leave many dividend stocks. The heavy dividend Dow Jones Industrial Average (^DJI -1.63%) underperformed the tech-focused Nasdaq Composite (^IXIC -1.63%) by more than 15 percentage points. The good news for income investors is that this preference means there are deals to be had now if you’re willing to hold a few quality stocks for the long term.
While several well-known dividend payers look attractive here at the start of 2025, two look poised to deliver particularly strong returns going forward. Here are some good reasons to buy McDonald’s (MCD -1.60%) and Home Depot (HD 0.69%)even if you already have shares of these companies.
Discover McDonald’s
McDonald’s is a well-known commodity among income investors. Following last November’s 6% dividend increase, the fast-food giant’s streak of annual increases now stands at 48.
Of course, that’s not long enough to make Mickey D’s a Dividend King, which requires 50 consecutive years of walking. But entry into that exclusive club seems very likely in a few years. McDonald’s yield is currently 2.4%, giving it the 11th highest payout among the 30 members of the Dow.
The stock has been under pressure recently, but this is mainly due to some challenging times for the industry. Budgets for McDonald’s main customers have been pressured by inflation for most of 2023, leading to unusually weak operating results. Comparable store sales were flat in the core US market last quarter and declined 1.5% globally for the period.
“Consumers … continue to be careful about their spending,” CEO Chris Kempczinski said in late October.
Investors want to look for a rebound in growth in the year ahead. Management plans to rely on marketing, competitive pricing and the digital order channel as pillars of its turnaround strategy. Still, even if it takes longer than expected to return the chain to faster earnings, shareholders will likely benefit from owning this highly profitable and cash-rich business for many years.
There’s No Place Like Home (Depot)
High interest rates haven’t been great for the housing market, and it’s easy to see the negative impact on Home Depot’s results lately. The home improvement giant said in mid-November that components are on pace to decline by nearly 3% for the full 2024 fiscal year, after strong growth in 2023.
Mortgage rates are still high, meaning there’s a good chance the chain will post another year of lackluster sales earnings in 2025. Still, Home Depot could still post a quick turnaround if economic conditions don’t not worse.
Comps improved to a 1% decrease last quarter, after all, compared to a 3% decline in the fiscal Q2 period. Management said at the end of last year that “we saw better engagement” as customer traffic improved to a flat result from a 2% decline in the previous quarter.
HD Operating Margin (TTM) data from YCharts
Meanwhile, Home Depot’s profit margin remains at almost 14% of sales, compared to the rival. Lowe’s and its rate of 12%. Look for continued performance here to keep Home Depot on top in the home improvement industry.
As for Home Depot stock, it looks attractive at 26 times earnings, down slightly from the recent peak of 29 times earnings. Patience should help reward investors who buy at that price and simply wait for the eventual recovery in the housing market to help return the company to growth.
Home Depot should collect a good portion of those recovery earnings, as it has for the past few decades. This is the surest path to long-term positive returns for any income investor.