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The Dow Jones Industrial Average is known for containing 30 leading components from various stock market sectors. But even Dow stocks can withstand steep selloffs.
Dow components Salesforce (NYSE: CRM), Chevron (NYSE: CVX)And Home Depot (NYSE: HD) are down between 12% and 24% from their 52-week highs and are all down since the start of the year, despite gains in the broader indexes such as the Dow Jones, S&P500And Nasdaq Composite.
Here’s why all three dividend stocks stand out as solid buys for patient investors.
Salesforce is a balanced purchase
Investors may have been surprised when Salesforce – a growth stock – was added to Dow in August 2020. At the time, Salesforce was inconsistently profitable and paid no dividends. But Salesforce as a company has matured considerably in recent years. Nowadays it is no longer purely focused on turnover and reinvesting everything in the company. The company is highly profitable, declared its first-ever quarterly dividend earlier this year and is buying back a ton of its stock.
Companies like Salesforce reward employees with stock-based compensation, which can dilute existing shareholders. Over the past decade, Salesforce’s number of shares outstanding has increased by 54%. However, the company has been buying back shares in recent years to help offset stock-based compensation and has reduced its share count by 1% over the past three years.
Salesforce has taken over a page Microsoft‘s playbook. Microsoft paid a record $10.7 billion in stock-based compensation over the past 12 months – an increase of 123% in five years, but has managed to reduce the number of shares outstanding by 2.6% in that time thanks to buy back. It takes a highly profitable company to execute this type of strategy. But if done right, it can help companies recruit and retain top talent without diluting shareholders.
Salesforce stands out as one of the most balanced technology stocks out there. The dividend yield is only 0.7%, but again the company has just started paying dividends. The forward price-to-earnings (P/E) ratio is just 24.5, which suggests that Salesforce is fairly cheap compared to its historical valuation. The biggest red flag with Salesforce is that growth has slowed and the company has not done a good job of monetizing artificial intelligence. However, it would be a mistake to overlook Salesforce’s leading position and opportunity for long-term growth in enterprise software.
There are plenty of other tech stocks in favor, but many of them come with expensive price tags. Salesforce stands out as a good buy if you’re looking for a more reasonable valuation and a company that isn’t going all-out on growth, but is more focused on profitability and returning capital to shareholders through buybacks and dividends.
Chevron is still a top pick in the oil patch
Despite strong results, Chevron is hovering around a 52-week low. Oil prices are partly to blame.
West Texas Intermediate (WTI) crude oil prices – the US benchmark – have been above $75 per barrel for most of the year. However, oil prices have fallen recently and WTI prices are now below that level.
Chevron’s closest colleague — ExxonMobil — is up quite a bit this year and is only about 5% off its all-time high. Although they are similar companies, ExxonMobil and Chevron have some distinct differences, especially in their merger and acquisition activities.
While Exxon completed its acquisition of Pioneer Natural Resources in May, Chevron has yet to make progress on its acquisition of Hes. It’s been 10 months since Chevron first announced its intention to buy the exploration and production company for $53 billion, but a variety of roadblocks stand in the way.
While Chevron isn’t as spotless as Exxon right now, it stands out as a particularly attractive buy. Continued dividend hikes combined with a stock sell-off have pushed Chevron’s yield to 4.6%. Over the past two years, Chevron has returned $50 billion to shareholders through dividends and buybacks – illustrating the extent of its outsized profits.
Chevron can fund its operations and dividend even if the oil price is $50 per barrel, giving the company a nice margin of error compared to current oil prices. Put it all together and Chevron is a quality dividend stock to buy now.
Home Depot can emerge from an industry-wide slowdown even stronger
Home Depot is roughly flat this year for several arguably valid reasons. For starters, Home Depot’s growth has stalled. The company is sensitive to ebbs and flows in the broader economy. So far this earnings season, several companies have indicated that consumers remain selective about spending, especially when it comes to durable goods.
Home Depot is benefiting from a strong economy and a warm housing market. Lower interest rates are excellent news for Home Depot because they mean cheaper financing costs, lower mortgage rates and cheaper financing for home improvement projects. Unfortunately, that is not the environment we find ourselves in today.
However, there are degrees in cyclical businesses. For example, some companies really go up and down depending on economic factors or commodity prices. But Home Depot is more of a boom or stagnation.
Over the past decade, Home Depot’s revenue has nearly doubled and its diluted earnings per share have more than tripled. But in recent years, you can see that Home Depot’s revenues and sales have declined slightly.
While Home Depot’s near-term performance could continue to disappoint, there’s no reason to believe anything has changed in the underlying investment thesis. Earlier this year, Home Depot made a massive $18 billion acquisition because it had the dry powder needed to invest regardless of the market cycle. It’s also worth understanding that Home Depot’s dividend is affordable, as the company’s payout ratio is a healthy 57%.
With a price-to-earnings ratio of 23.2 and a yield of 2.5%, Home Depot is a balanced, leading company that’s worth buying now.
Zoom out and think long term
Salesforce, Chevron, and Home Depot may operate in completely different industries. But all three companies are similar in that they are experiencing slower growth or even negative growth (in the case of Home Depot).
Short-term investors may pass up all three companies quickly, but long-term investors focus on where a company will be in a few years, rather than where it is today. Salesforce, Chevron and Home Depot show no signs of losing their industry leading positions – making all three stocks worth considering now.
Should you invest €1,000 in Salesforce now?
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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chevron, Home Depot, Microsoft and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
Down between 12% and 24% from their 52-week high, 3 Great Dow Dividend Stocks to Buy Now was originally published by The Motley Fool