In addition to steady dividend payout raises, investors could benefit from significant stock price appreciation.
Finding stocks that can outperform the overall market is easy if you don’t mind accepting a heap of risk. Stocks that can deliver a market-beating beating performance without exposing you to much risk, though, are few and far between.
An easy way to narrow the universe of stocks to those most likely to outperform is by selecting ones with established dividend programs. During the 50-year period that ended 2023, the average dividend-paying stock in the benchmark S&P 500 index delivered a 9.17% return annually, according to Ned Davis Research and Hartford Funds. Non-dividend payers in the same index returned just 4.27% per year on average, and these underperforming stocks were more likely to exhibit wild price swings.
Microsoft (MSFT 0.87%) and Walmart (WMT 1.51%) are two dividend payers from the S&P 500 with heaps of upside according to the investment bank analysts who follow them. Here’s a look at what they have to say to see if they could be a good fit for your portfolio.
1. Microsoft
Shares of Microsoft are already up about 12% in 2024, but RBC Capital analyst Rishi Jaluria thinks they can climb higher still. Jaluria recently reiterated an outperform rating for the stock and raised his price target to $500. The new target implies a gain of about 19% from recent prices.
Microsoft has been paying a dividend since 2003, and at recent prices, it offers a minuscule 0.7% yield. The dividends you receive from this stock might start small, but they won’t stay that way. The tech giant has raised its payout by about 63% over the past five years, and the next five could be even more lucrative.
Jaluria’s excited about Microsoft’s early lead in the race to become the world’s go-to provider of generative artificial intelligence (AI) services such as ChatGPT and Copilot. Of course, this isn’t the company’s only growth driver.
Xbox content and services revenue soared 62% during the company’s fiscal third quarter ended in March, thanks almost entirely to the recent acquisition of Activision and its popular Call of Duty franchise. Microsoft will now offer the hyper-popular game on Game Pass, its monthly subscription service.
Analysts aren’t wrong to predict strong gains ahead of Microsoft, but everyday investors should know that a lot of growth is already baked into the stock. Shares of the tech giant have been trading at about 44.5 times trailing free cash flow.
Microsoft has been growing fast enough to justify its rather high earnings multiple. If profits don’t continue rising at a similar pace, though, investors who buy now could get stuck with big losses. If you’re going to buy this stock, make sure it’s a relatively small part of a diverse portfolio.
2. Walmart
Walmart isn’t usually a volatile stock, but its price has already risen a surprising 23% this year to nearly $65 per share at recent prices. BMO Capital analyst Kelly Bania thinks it can climb even higher. Bania recently raised her price target for Walmart to $75 per share and maintained positive ratings on the stock.
Wall Street reacted positively to signs the company’s online shopping and delivery initiatives are producing market share gains. Walmart reported comparable sales that grew 4% year over year in its fiscal fourth quarter that ended on Jan. 26. The big-box champ continued with comps that rose another 3.8% in its fiscal first quarter that ended on April 30.
Walmart is gaining on its biggest competitors. During the three months ended Feb. 3, Target reported comparable sales that fell 4.4% year over year. During the same time frame, Kroger reported identical sales that shrank by 0.8% year over year.
At recent prices, Walmart offers a modest 1.3% dividend yield and a strong chance for steady raises throughout your retirement. In February, the company raised its dividend payout for the 51st year in a row. With over 10,000 stores and a successful e-commerce operation, there’s a good chance it will be able to maintain and expand its lead over the competition.
Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group, Microsoft, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.