Dividend stocks are dirt cheap. It may be time -2-

If you had purchased shares of Home Depot Inc. HD five years ago, you would have paid $193.70 a share if you went in at the close on Oct. 10, 2018. At that time, the company's quarterly dividend was $1.03 cents a share, for an annual dividend rate of $4.12, which made for a then-current yield of 2.13%.If you had held your shares of Home Depot for five years through Tuesday, your quarterly dividend would have increased to $2.09 a share, for a current annual payout of $8.36. The company's dividend has increased at a compound annual growth rate (CAGR) of 15.2% over the past five years. In comparison, the S&P 500's weighted dividend rate has increased at a CAGR of 6.24% over the past five years, according to FactSet.That annual payout rate of $8.36 would make for a current dividend yield of 2.79% for a new investor who went in at Tuesday's closing price of $299.22. But if you had not reinvested, the dividend yield on your five-year-old shares (based on what you would have paid for them) would be 4.32%. And your share price would have risen 54%. And if you had reinvested your dividends, your total return for the five years would have been 75%, slightly ahead of the 74% return for the S&P 500 SPX during that period.

Home Depot hasn't been the best dividend grower among the nine stocks named by Justman, but it is a good example of how an investor can build income over the long term, while also enjoying capital appreciation.

Here's the dividend CAGR comparison for the nine stocks:

   Company                              Ticker   Five-year dividend CAGR  Dividend yield on shares purchased five years ago  Dividend yield five years ago  Current dividend yield  Five-year price change  Five-year total return 
   CME Group Inc. Class A                CME                       9.46%                                              2.44%                          1.55%                   2.04%                     20%                     42% 
   Home Depot Inc.                        HD                      15.20%                                              4.32%                          2.13%                   2.79%                     54%                     75% 
   Lowe's Cos, Inc.                      LOW                      18.04%                                              4.14%                          1.81%                   2.17%                     91%                    109% 
   Morgan Stanley                         MS                      23.16%                                              7.62%                          2.69%                   4.24%                     80%                    108% 
   U.S. Bancorp                          USB                       5.34%                                              3.60%                          2.78%                   5.89%                    -39%                    -26% 
   Medtronic PLC                         MDT                       6.65%                                              2.90%                          2.10%                   3.62%                    -20%                     -9% 
   Texas Instruments Inc.                TXN                      11.04%                                              5.24%                          3.10%                   3.30%                     59%                     82% 
   United Parcel Service Inc. Class B    UPS                      12.23%                                              5.56%                          3.12%                   4.17%                     33%                     56% 
   Union Pacific Corp.                   UNP                      10.20%                                              3.37%                          2.07%                   2.52%                     34%                     49% 
                                                                                                                                                                                                                   Source: FactSet 

This isn't to say that Justman and Brown have held all of these stocks over the past five years. In fact, Lowe's Cos. (LOW) was added to the portfolio this year, as was United Parcel Service Inc. (UPS). But for most of these companies, dividends have compounded at relatively high rates.

When asked to name an example of a stock the fund had sold, Justman said he and Brown decided to part ways with Verizon Communications Inc. (VZ) last year, "as we became concerned about its fundamental competitive position in its industry."

Summing up the scene for dividend stocks, Justman said, "It seems this year the market is treating dividend stocks as fixed-income instruments. We think that is a short-term issue and that this is a great opportunity."

-Philip van Doorn

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10-11-23 0842ET

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