Summer in America brings long days with beach vacations, barbecues, and travel for many families. Americans often spend more on discretionary items during these three months.
As a result, it’s a good time to add stocks of companies that benefit from the summer months to your portfolio. For instance, airlines and hotels are often busier from June to August because families take long vacations. Summer is also a time for outdoor hobbies, gardening, sitting by the pool, and home renovations.
Although these stocks are seasonal picks, they often perform well over the long term, creating value and rising passive income streams. Many of these companies understand dividends matter to investors and increase them annually. Below are four summer dividend stocks to consider.
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4 Summer Dividend Stocks
The Home Depot (HD) is the largest home improvement retailer in the United States. The company owned and operated 2,324 U.S., Canadian, and Mexican stores at the end of Q1 2023. It is the leader in selling hardware, building material, lawn and garden products, décor, grills, and home improvement products. Total sales exceeded $157 billion in fiscal 2022 and $155 billion in the last twelve months.
The firm operates in an oligopoly with its main competitor, Lowe’s. Combined, the two companies control a large part of the home improvement market. Home Depot grows by selling more items in its enormous stores and adding to the total store count. Consumers and businesses continue to renovate and remodel existing housing stock. Moreover, the number of homes and condominiums rises with increasing population. That said, Home Depot’s sales are sensitive to raising interest and mortgage rates, which cause lower home sales.
Home Depot is solidly profitable with excellent free cash flow. This fact has allowed the company to buy back shares and pay a growing dividend. The firm is a Dividend Contender with a 14-year streak. The forward dividend yield is 2.77%, more than the 5-year average of 2.35%. The company has increased the dividend at a double-digit rate for the past decade. But the moderate payout ratio of ~46% gives confidence about future growth and dividend safety. In addition, Home Depot earns a dividend quality grade of B+.
The company is trading at the lower end of its 5-year P/E range because investors are worried about high mortgage rates affecting sales. Hence, it may be an opportune time to buy shares.
Dick’s Sporting Goods
Dick’s Sporting Goods (DKS) benefits from the summer months, making it an ideal seasonal dividend stock. Although the retailer sells items for all sports, it gains from increased consumer activity outdoors during the summer. The retailer operates 863 stores in 47 states. Besides the Dick’s Sporting Goods concept, the firm also owns Golf Galaxy, Moosejaw, Public Lands, Going Going Gone, Top Score, and GameChanger. Dick’s Sporting Goods has an 8% market share, making it the leading retailer in its category.
Total sales were over $12,368 million in fiscal 2022 and $12,500 million in the last twelve months. Volumes and revenue increase organically by selling more items and adding to the total store count. The firm sells national brands like Nike, Yeti, Peloton, Wilson, etc. In addition, Dick’s is growing its more profitable private label offerings.
Dick’s Sporting Goods is a Dividend Challenger with a nine-year streak of increases. The scale has allowed the company to increase the payout by almost 25% CAGR in the trailing five years. Dividend safety is excellent, too, with a low payout ratio of around 16%, reasonable leverage, and a B+ dividend safety score.
Retailers have generally struggled as the pandemic waned, and Dick’s Sporting Goods is no exception. But the price-to-earnings ratio has fallen to ~10X, a reasonable value. Investors may want to dip into this stock.
Marriott International (MAR) is the largest hotel chain in America and globally. The firm operates thousands of hotel properties in 138 countries. The firm’s brand names include Marriott, St. Regis, W Hotels, Ritz-Carlton, Renaissance, Sheraton, Westin, Four Points, Fairfield, etc.
After the decline during the COVID-19 pandemic, revenue has rebounded above 2019 levels. Total revenue was $5,356 million in 2022 and $6,772 million in the trailing twelve months.
As the largest hotel operator, Marriott has the advantage of scale. Consequently, it is growing faster than its peers. Future expansion will come from adding more brands, building more hotels, and managing or franchising additional properties for owners. In addition, Marriott has the most extensive loyalty program, which drives repeat hotel stays.
Marriott International struggled during the COVID-19 pandemic, and the event triggered a dividend suspension. But before that, the firm was a Dividend Contender. The hotel operator reinstated the dividend in 2022 at an annual rate of $1.00 per share. The minimal payout ratio of approximately 15% suggests more future dividend increases.
The stock is trading at a P/E ratio of ~21X. But burgeoning travel around the world means revenue and profits will probably increase this year. Retail investors should take a look at this stock.
The last stock on our list is Pool Corporation (POOL), the distributor of pool supplies, equipment, and related equipment. The company sells chemicals, filters, pumps, lights, parts, etc., for building and maintaining pools. It also sells grills, hot tubs, irrigation, and outdoor kitchen items. It is the quintessential summer dividend stock.
The firm obviously does better during the summer months when pools are open for the season. The firm has proliferated since it was incorporated in 1993. Total revenue was ~$6,180 million in 2022 and $5,973 million in the past twelve months.
Selling pool-related supplies and equipment is profitable and not capital-intensive. As a result, Pool Corporation is returning cash to shareholders. The firm is a Dividend Contender with 13 years of dividend growth. The forward yield is ~1.2%, more than the 5-year average. The payout ratio is also low at 21%, combined with an ‘A+’ dividend quality grade.
Pool Corporation’s stock price is down from its all-time and 52-week high. The stock typically trades at a premium, but the forward earnings multiple is now below the 5-year and 10-year ranges. Hence, we view this stock as a buy now.
Disclosure: Long HD
A version of this post by Dividend Power originally appeared on Investor Place and was republished with permission.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.