Down 12% and 24% From Their 52-Week Highs, 3 Magnificent Dow Dividend Stocks to Buy Now

The Dow Jones Industrial Average is known for containing 30 industry-leading components from a variety of stock market sectors. But even Dow stocks can endure steep selloffs.

Dow Components Salesforce (CRM 1.37%), Chevron (CVX 0.35%)and Home Depot (HD 0.09%) are down between 12% and 24% from their 52-week highs, and are all down year-to-date despite gains in broader indexes like the Dow, S&P 500and Nasdaq Composite.

Here’s why all three dividend stocks stand out as solid buys for patient investors.

Image source: Getty Images.

Salesforce is a balanced buy

It may have surprised investors when Salesforce — a growth stock — was added to the Dow in August 2020. At the time, Salesforce was inconsistently profitable and didn’t pay a dividend. But Salesforce has matured a lot as a company in recent years. Today, they are no longer just focused on revenue and reinvesting everything back into the business. The company is very profitable, announced its first 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 outstanding shares have risen 54%. However, it has bought shares in recent years to help offset stock-based compensation and has reduced its share count by 1% over the past three years.

Salesforce took a page from Microsofthis playbook. Microsoft paid out a record $10.7 billion in stock-based compensation over the past 12 months — up 123% over five years, but managed to reduce its outstanding shares by 2.6% in that time due to redemptions. It takes a very profitable business 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 tech stocks out there. The dividend yield is just 0.7% — but then again the company just started paying dividends. The forward price-to-earnings (P/E) ratio is just 24.5 — suggesting that Salesforce is quite cheap compared to its historical valuation. The biggest red flag with Salesforce is that growth has slowed and the company hasn’t done a great job of monetizing AI. However, it would be a mistake to overlook Salesforce’s industry leadership and long-term growth trajectory for enterprise software.

There are plenty of other tech stocks in favor — but many of them carry 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 focused on growth, but rather is more focused on being profitable and returning capital to shareholders through buybacks and dividends.

Chevron is still a top pick in the oil space

Despite the 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 — spent most of the year above $75 a barrel. However, oil prices have fallen recently and WTI prices are now below this level.

WTI Crude Oil Spot Price data by YCharts

Chevron’s closest man — ExxonMobil — is up nicely for the year and is only 5% or so off its all-time high. Although they are similar businesses, ExxonMobil and Chevron have some distinct differences, particularly in their merger and acquisition activity.

While Exxon completed its acquisition of Pioneer Natural Resources in May, Chevron has yet to make progress on its acquisition Hess. It’s been 10 months since Chevron first announced it would buy the exploration and production company for $53 billion, but a variety of roadblocks stand in its way.

While Chevron isn’t as flawless as Exxon right now, it stands out as a particularly compelling buy. Steady dividend increases paired with a stock selloff pushed Chevron’s yield up to 4.6%. Over the past two years, Chevron has returned $50 billion to shareholders through dividends and buybacks — illustrating the scale of its huge gains.

Chevron can fund its operations and dividends even when oil is $50 a barrel, giving it a good margin for error relative to current oil prices. Add it all up and Chevron is a quality dividend stock to buy now.

Home Depot may emerge from an industry slowdown even stronger

Home Depot is roughly irregular per year for a variety of reasons that may be valid. For starters, Home Depot’s growth has stalled. The company is sensitive to the ebbs and flows of the wider economy. So far this earnings season, a variety of companies have indicated that consumers remain selective about spending, particularly on discretionary goods.

Home Depot is benefiting from a strong economy and a hot housing market. Lower interest rates are great news for Home Depot because they mean cheaper borrowing costs, lower mortgage rates and less expensive financing for home improvement projects. Unfortunately, this is not the environment we find ourselves in today.

However, there are grades for cyclical companies. For example, some companies are really booming or busting based on economic factors or commodity prices. But Home Depot is either boom or bust.

Over the past decade, Home Depot’s sales have nearly doubled and diluted earnings per share have tripled. But over the past two years, you can see that Home Depot’s earnings and sales have declined slightly.

HD Revenue Data (TTM) by YCharts

While Home Depot’s performance may continue to disappoint in the short term, there’s no reason to believe that anything has changed in terms of its core investment thesis. Earlier this year, Home Depot made a massive $18 billion acquisition because it had the dry powder to invest regardless of the market cycle. It’s also worth understanding that Home Depot’s dividend is affordable, given that the company’s payout ratio is 57%.

With a P/E ratio of 23.2 and a yield of 2.5%, Home Depot is a well-balanced, industry-leading business 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 subject to slower growth or even negative growth (in the case of Home Depot).

Short-term investors can quickly pass on all three companies, 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 leadership positions — making all three stocks worth considering now.