It's always a good time to buy dividend stocks, but when the market is volatile, it's even more important. The market doesn't look volatile right now; the S&P 500 is up 25% so far this year and reaching record highs.
However, there are indications that the market is getting bloated. Valuations are high, and if that continues, it could lead to a correction. There has been global macroeconomic volatility as high inflation persists in some regions, and President-elect Donald Trump's financial agenda could spark change in the U.S. economy.
What that means, of course, is that you want to have some solid, reliable dividend stocks in your portfolio. They provide security in challenging times and passive income at all times. Realty Income (O -0.77%), Home Depot (HD -0.58%), and Ally Financial (ALLY -1.00%) are three great choices.
1. The monthly dividend stock
Realty Income is a real estate investment trust (REIT). REITs are great dividend stocks because they pay 90% of their earnings as dividends. They're usually stable and reliable with high yields, but not always. Realty Income is all of that, plus it has a proven track record over decades, and it's one of a few REITs that pay a dividend monthly.
REITs own properties that they lease to tenants, usually for long-term time periods. REITs typically concentrate in a specific industry, and Realty Income is a retail REIT. However, it has recently branched out into areas to grow its property count as well as diversify its holdings.
Retail is still its top field, by far, with grocery stores and convenience stores accounting for almost 20% of all leased properties. But it now also counts gaming and industrial clients as tenants. Its top two tenants are Dollar General and Walgreens Boots Alliance, and the rest of its top clients are mostly essentials retailers that can pay the rent even in tough times. In other words, Realty Income's steady income translates into reliable dividends for shareholders.
Realty Income's dividend yields 5.4% at the current price, and it's reliable for continued payments under all kinds of conditions.
2. Home improvement is coming back
Home Depot has a long history of market-beating performance, and the dividend has played a large role in creating shareholder value. Although the company is feeling pressure right now, it's due to external factors -- a poor housing market is putting house sales on pause, trickling down to lower home improvement sales. But as soon as that reverses, Home Depot is well positioned to rebound.
Trends are moving in the right direction as interest rates come down and home sales improve. Home Depot demonstrated better-than-expected results in the 2024 fiscal third quarter (ended Oct. 27), with a 6.6% increase in sales over last year and a 1.3% decrease in comparable sales. It raised full-year guidance across the board, and it's expecting a 2.5% decrease in comparable sales and a 4% increase in total sales, plus a 2% decrease in earnings per share (EPS). If Home Depot can close out the year on a positive note, it should be poised to spring forward in 2025.
Investors have been feeling positive about Home Depot despite the pressure, and Home Depot stock is up 23% this year. At the current price, the dividend yields 2.1%, and investors can expect a growing, steady paycheck from Home Depot stock while enjoying stock gains.
3. The up-and-coming bank
Ally is a Warren Buffett stock, and it's easy to see why. It has a growing business, it's a bank stock, it's cheap, and it pays a high-yielding dividend.
It's the largest all-digital bank in the U.S., which says a lot when compared with so many new players like SoFi Technologies as well as all of the big banks with their digital presence. Ally is best known, though, for its robust auto loan division. It got started as the financial segment of General Motors, which gives it more than century of data and experience, but it was spun off just a few years ago as its own entity. Ally is still the top prime auto lender in the country, and it has built up an impressive consumer banking business with strong customer retention rates. It also has all of the standard financial products that all big banks have, including investing services, insurance products, and credit cards.
Ally continues to attract customers to its all-digital platform, and they will continue to drive business in the coming years. Ally has been feeling pressure due to high interest rates, and its stock plummeted earlier this year on worse-than-expected auto loan defaults. However, it's already rising again as interest rates go down.
At the current price, Ally stock trades at less than 10 times next year's earnings and less than 1 time its book value. Its dividend yields 3.1%, and Ally is a great pick for a stable but growing bank stock.
