With numerous brokerages offering commission-free trading, there’s practically no minimum cash requirement to start investing in the stock market. Whether you’re investing a few hundred or several thousand dollars, the potential for strong returns persists through owning a diversified portfolio of high-quality equities over the long term.
For investors seeking to start with smaller capital, dividend stocks offer an appealing avenue. They provide immediate passive income that can be reinvested automatically, gradually accumulating more shares over time. When coupled with sound investment choices, this strategy can yield remarkable returns over several decades.
Keeping this objective in mind, let’s explore a selection of dividend stocks priced below $500 per share, each demonstrating promising long-term potential.
1. Home Depot
Being the dominant player in an industry certainly has its perks, as evidenced by Home Depot (NYSE: HD). This powerhouse in the home improvement sector outshines its closest competitor, Lowe’s, in terms of profitability, sales growth, and financial metrics. Its consistent performance across market fluctuations underscores its market leadership advantage.
Moreover, Home Depot boasts a more attractive dividend yield, currently offering a 2.2% yield compared to Lowe’s 1.8%. However, it’s essential to acknowledge the inherent risks associated with its business model, particularly its sensitivity to interest rate fluctuations and the overall health of the housing market.
Nevertheless, Home Depot has a proven track record of adeptly navigating economic cycles, which instills confidence in its ability to weather uncertainties. Shareholders can likely anticipate continued stability and value creation from this industry leader in the years to come.
2. Microsoft
Microsoft (NASDAQ: MSFT) may offer a relatively modest dividend yield, currently sitting at less than 1%, but it surpasses the dividend yield of Apple. Despite this, Microsoft’s dividend payments to shareholders remain substantial, with a total of $11 billion distributed over the past six months, marking an increase from the previous year’s $10 billion.
With a robust financial position, Microsoft stands out as a company well-equipped to maintain such significant cash distributions. Its software-as-a-service business model, coupled with its dominant market share, proves highly lucrative, evidenced by a 23% increase in earnings last quarter, totaling $27 billion.
Investor optimism is fueled by Microsoft’s potential in emerging technologies like artificial intelligence (AI), particularly in bolstering growth across various segments, notably its Azure platform. Additionally, Microsoft’s exposure to burgeoning sectors such as cybersecurity and video gaming diversifies its revenue streams, mitigating volatility typically associated with smaller tech companies. This diversified portfolio enhances investor confidence in Microsoft’s resilience and growth potential.
3. McCormick
McCormick (NYSE: MKC) stands out as a top dividend stock despite facing challenges in recent times. The spice and flavorings manufacturer has lagged behind the S&P 500 since early 2023, mainly due to slowing growth following the pandemic-induced surge. Despite this, revenue saw a modest 2% increase in the latest quarter after adjusting for currency fluctuations.
However, a turnaround appears imminent, as management anticipates a gradual acceleration in sales volumes throughout fiscal 2024. Similar to its counterparts in the consumer staples sector, McCormick faces pressure from declining demand and the conclusion of significant price hikes linked to inflation.
Nevertheless, McCormick’s impressive track record of boosting dividends for 38 consecutive years, with a compound annual growth rate of 11%, remains a key highlight. Having such a resilient dividend stock in your investment portfolio, particularly at a discounted price, can significantly enhance long-term returns.
