Exploring Overlooked Dividend Stocks with Growth Potential
Dividend stocks have historically provided investors with consistent returns, often outperforming non-dividend-paying stocks. Among the numerous options available, two lesser-known stocks stand out: Honeywell International Inc. (NASDAQ: HON) and Domino’s Pizza Inc. (NASDAQ: DPZ). Both companies, while currently facing market challenges, show strong potential for future growth and increasing dividends.
Honeywell: A Leader in Diversified Industrials
Honeywell is a renowned player in the diversified industrials sector, providing innovative solutions across various industries globally. With almost 140 years of experience, Honeywell has established credibility through its multiple business segments, including Aerospace Technologies, Industrial Automation, and Energy and Sustainability Solutions.
The surge in e-commerce has significantly increased the demand for warehouse automation, an area where Honeywell excels. Their automation solutions have demonstrated a meaningful return on investment (ROI), which has been driven by enhanced productivity. Furthermore, Honeywell is poised to benefit from long-term trends in data analytics for power plants and commercial aerospace growth.
According to Morningstar analyst Nicholas Lieb, Honeywell is expected to achieve mid-single-digit organic top-line growth over the next five years, alongside near-double-digit earnings-per-share growth. The company is also planning a significant restructuring that will lead to the creation of three distinct publicly traded entities. Until then, investors can enjoy a 2.1% dividend yield with consistent increases.
Domino’s Pizza: The World’s Largest Pizza Maker
Domino’s Pizza operates more than 21,500 stores worldwide, making it a dominant force in the pizza industry. The company’s revenue primarily comes from pizza sales, but they also offer wings, salads, and desserts. Notably, Domino’s has implemented a “fortressing” strategy, which seeks to increase store density in key markets.
This strategy has several advantages, including the ability to grow their higher-margin carryout sales mix and improve delivery efficiency. Despite facing a challenging environment due to declining industry traffic, Domino’s has managed to gain market share, posting a median annual comparable sales growth of around 3.5% in the U.S. and 3.4% internationally over the past decade.
Although Domino’s is competing in a fiercely competitive restaurant industry, their focus on quality food, convenience, and competitive pricing has propelled them forward. Currently, the company offers a modest dividend yield of 1.6% with the potential for increases in the future as it emphasizes higher-margin business strategies.
Conclusion
Both Honeywell and Domino’s Pizza represent intriguing opportunities for income investors looking for growth potential despite their current stock prices not being particularly high. Honeywell’s innovative solutions and upcoming structural changes could lead to enhanced valuations, while Domino’s ability to adapt in a competitive market showcases its resilience.
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