Wall Street was enamored with tech stocks in 2024, choosing to leave many dividend stocks behind as a result. The dividend-heavy Dow Jones Industrial Average (^DJI -1.63%) underperformed the tech-focused Nasdaq Composite (^IXIC -1.63%) by more than 15 percentage points. The good news for income investors is this preference means there are deals to be had right now if you're willing to hold a few quality stocks for the long term.
While many well-known dividend payers seem attractive here in early 2025, two appear primed to deliver especially strong returns going forward. Here are some good reasons to buy McDonald's (MCD -1.60%) and Home Depot (HD 0.69%), even if you already own shares of these companies.
Get to know McDonald's
McDonald's is a known commodity among income investors. Following this past November's 6% dividend increase, the fast-food giant's streak of annual raises now sits at 48.
Sure, that's not long enough to make Mickey D's a Dividend King, which requires 50 consecutive years of hikes. But entrance into that exclusive club seems highly likely in a few years. McDonald's yield is currently 2.4%, giving it the 11th highest payout among the 30 members of the Dow.
The stock has underperformed recently, but that's mainly due to some challenging times for the industry. Budgets for McDonald's core customers were pressured by inflation through most of 2023, leading to unusually weak operating results. Comparable-store sales were flat in the core U.S. market last quarter and declined 1.5% globally for the period.
"Consumers...continue to be mindful about their spending," CEO Chris Kempczinski said in late October.
Investors will want to watch for a growth rebound in the year ahead. Management is planning to lean on marketing, competitive pricing, and the digital ordering channel as pillars of its turnaround strategy. Yet even if it takes longer than expected to get the chain back up to faster comps gains, shareholders will likely profit from owning this highly profitable, cash-rich business over many years.
There's no place like Home (Depot)
High interest rates haven't been great for the housing market, and it's easy to see the negative impact on Home Depot's results lately. The home improvement giant said in mid-November that comps are on pace to decline by nearly 3% for the full fiscal 2024 year, following strong growth in 2023.
Mortgage rates are still elevated, meaning there's a good chance the chain will post another year of lackluster sales gains in 2025. Yet, Home Depot might also post a quick rebound if economic conditions don't worsen.
Comps improved to a 1% decline last quarter, after all, compared to a 3% slump in the fiscal Q2 period. Management said late last year that "we saw better engagement," as customer traffic improved to a flat result from a 2% decline in the previous quarter .
HD Operating Margin (TTM) data by YCharts
Meanwhile, Home Depot's profit margin is holding up at nearly 14% of sales, compared to rival Lowe's and its 12% rate. Watch for continued outperformance here to keep Home Depot on top in the home improvement industry.
As for Home Depot stock, it seems attractive at 26 times earnings, down slightly from the recent peak of 29 times earnings. Patience should help reward investors who buy in at around that price and simply wait for the eventual recovery in the housing market to help return the company to growth.
Home Depot should accumulate a nice share of those rebound gains, just as it has for the last several decades. That's the surest path toward positive long-term returns for any income investor.
