2 stocks that could be easy wealth generators

If you want to build easy wealth, investing in the stock market is a great place to start.

The S&P 500 has a track record of providing an average annual return of 9% with reinvested dividends, which will help you build wealth over time. But by investing in individual stocks, you can grow your wealth even faster if you pick the right stocks.

Read on to see two stocks that seem well-positioned to build wealth in your portfolio.

1. Home Depot

Home Depot (NYSE: HD) it was one of the best performing stocks in history. Since the 1981 IPO, the stock has risen 1,777,000%. That means a $1,000 investment then would be worth more than $17 million now.

Unfortunately, that track record won’t help you much unless you have a time machine, but it’s a testament to the company’s dominance in the home improvement retail sector and its enduring competitive advantages.

Today, Home Depot still looks like an excellent candidate for long-term wealth accumulation. Now seems like a great time to buy stocks as the housing market is expected to rebound as interest rates fall.

Home Depot competes in a duopoly with Lowe’s. This dynamic favored both retailers, allowing Home Depot to generate wide operating margins and high returns on invested capital. Even in a challenging retail environment, the company reported an operating margin of 15.3%, an impressive percentage for almost any retailer.

It had a trailing 12-month return on invested capital (ROIC) of 31.9%, down from 41.5% in the prior period due to the acquisition of SRS Distribution, but still strong. In other words, the company is well equipped to earn a strong return on new investment due to its economies of scale, brand advantages and omnichannel strength.

The stock may not look well priced right now at a price-to-earnings (P/E) ratio of 25, but earnings are suppressed by weakness in the housing market. When interest rates fall and demand for home improvement materials increases, Home Depot’s profits could rise along with the stock. Plus, the company’s 2.5% dividend yield adds a bonus for dividend investors, and you can grow your wealth faster through a dividend reinvestment plan (DRIP).

2. Real estate income

Another real estate focused dividend act worth buying if you want to build wealth is Real estate income (NYSE: O).

Realty Income is a real estate investment trust (REIT) that specializes in triple-net leases, meaning its tenants pay for maintenance, insurance and property taxes. This makes cash flow more predictable. In addition, the company primarily leases its properties to recession-proof retailers such as convenience stores and pharmacies. For example, Walgreens and 7-Eleven are two of its largest tenants.

The story continues

The company now owns more than 15,000 commercial real estate properties and, like Home Depot, has a long-term track record of outperforming the stock market and delivering reliable growth, with a total annual compounded return of 13.5% since 1994 .lower volatility than the S&P 500.

The company is a favorite among dividend investors because it pays a monthly dividend and increases it every quarter. Realty Income has declared 649 monthly dividends in a row and has increased its dividend for 107 consecutive quarters.

This is a great recipe for building wealth for any stock, but especially one that has been able to deliver consistent growth like Realty Income has.

Now also seems like a great time to buy stocks, as falling interest rates favor REITs like Realty Income in two ways. First, it will lower its borrowing costs and make it easier to refinance existing debt, saving the company money on interest expenses and helping it fund future growth. Second, lower interest rates make dividend stocks more attractive because bond investors tend to rotate back into dividend stocks as bond yields fall.

Realty Income now pays a dividend yield of 5.1% and appears to be already benefiting from that expectation. Shares are up nearly 20% since early July as interest rates are more likely to fall soon.

The company still has a massive addressable market to tap into and could very well continue to deliver consistent returns of around 13% with a high yielding dividend. If you’re looking to build wealth, Realty Income looks like a no-brainer stock to buy.

Should you invest $1,000 in Home Depot right now?

Before you shop for inventory at Home Depot, consider the following:

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Jeremy Bowman has no position in any of the listed stocks. The Motley Fool has positions in and recommends Home Depot and Realty Income. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.

2 Stocks That Could Be Easy Wealth Builders was originally published by The Motley Fool