While dividend growth stocks may fare better than their more volatile counterparts in every season, it’s impossible to avoid the selloff entirely. No matter how high-quality a stock’s operations may be, the macroeconomic market can affect boring-looking stocks in ways investors might not have imagined.
Consider the 2020 pandemic and how its effects were initially adversarial Sherwin-Williams (SHW -0.44%) and Domino’s Pizza (DPZ -0.26%). With their customers stuck at home, many turned to Sherwin-Williams products to freshen up their homes or relied on Domino’s speedy delivery for an easy pizza night.
The two stocks saw early growth and profitability during the pandemic but have struggled since then, with comparable figures trying to weigh down.
However, it does give investors a compelling opportunity to buy these all-season dividend stocks at low prices. So let’s dive in and see what an exciting time it is today to consider the strong operation of these two stocks.
Sherwin-Williams is the world’s largest paint and coatings manufacturer, with a record $22 billion in sales last year. However, facing pandemic-aided data from late 2020 and early 2021, Sherwin Williams saw its share price decline 15% over the past year.
This was further harmed by higher raw material prices from the inflationary environment, which increased the cost of goods sold to balloon.
Finally, Sherwin-Williams sees incredible potential during boom cycles when everything is in place through its global, end-to-end supply chain. However, it has had to put out a lot of fires in more difficult times, making it somewhat cyclical.
So facing these temporary issues — what makes Sherwin-Williams an all-weather stock worth adding $1,000 to today?
First, it has cost advantages from its supply chain, its wide moat in the paint industry due to its efficient scale and its vast network of nearly 5,000 stores worldwide. Proving the power of this gap, the company has generated an average return on invested capital (ROIC) of 19% over the past two decades.
A stock’s ROIC reflects its profitability relative to its overall debt and equity. For example, Sherwin-Williams’ average of 19% since 2002 would put it in the top quartile of ROIC among current stocks. S&P 500 index. These top-tier ROIC generators are proven to outperform their peers over time, generating substantial value.
Furthermore, Sherwin-Williams has become a shareholder return wizard thanks to this strong profitability. While the company only raised its dividend 1% to $0.02 in 2023 as a precaution with today’s environment, it managed to grow its dividend by 331% over the last decade. This dividend accounts for only 27% of its net income, leaving room for growth in the future — marking its 44th consecutive year of dividend increases.
On top of that, the company continues to reward investors with steady stock buybacks, reducing its outstanding shares by 16% over the past 10 years.
With a price-to-earnings ratio of 31, Sherwin-Williams’ stable business continues to earn a premium. However, its wide moat, strong shareholder returns, and steady profitability in trying times make Sherwin-Williams an excellent all-weather dividend stock to buy after its recent decline.
2. Domino’s Pizza
The way Sherwin-Williams flourished amid the lockdown, Domino’s Pizza will be considered a pandemic darling of sorts. while not accomplished to the same extent zoomDomino’s, for example, posted double-digit sales growth in late 2020 and for five straight quarters in 2021.
Domino’s was successful despite the challenging environment, thanks to its robust carryout operations and ability to implement a contact-free pickup option during the pandemic. This success sent its stock skyrocketing, falling just over 36% from its all-time high.
Facing tough comparisons from the previous year, Domino’s growth stalled as pandemic restrictions eased and its customers were hungry for more authentic dining experiences. Also held back by inflation, higher material costs and issues finding labor for its stores, the company recorded three straight quarters of earnings per share (EPS) gains to start 2022.
So what on earth is it that makes Domino’s Pizza an all-time favorite stock to buy right now?
First of all, if we go through the timeline regarding this declining EPS, we can see that this looks like nothing more than a decline in the larger spectrum of things.
Likewise, its incredible ROIC remains the highest in the S&P 500 index despite recent lows.
On top of this, despite being value-conscious for its customers, Domino’s didn’t experience a decline in sales, despite a nearly 5% year-over-year price increase in the third quarter. In fact, carryout sales increased 20% in the third quarter, and the company is now the largest carryout pizza brand in the US.
Additionally, the company decreased its share count by 37% over the past decade, while its dividend payments increased by 450% over the same time frame. Despite this tremendous growth, its 1.2% dividend only uses 34% of the company’s net income, leaving a solid dividend growth runway.
Domino’s trades at 29 times earnings, which is slightly below its 10-year average of 34. Registering three consecutive quarters of sales growth despite slowly implementing price increases, Domino’s makes for an excellent shareholder return-focused company to add at a discount.