If you’re aiming to accumulate wealth effortlessly, the stock market offers a promising starting point.
The S&P 500 boasts a history of providing an average annual return of 9% with dividends reinvested, facilitating long-term wealth growth. However, by opting for individual stocks, you have the potential to accelerate this wealth-building process, provided you select wisely.
Continue reading to explore two stocks that appear to be strategically positioned to enhance your portfolio’s wealth.
1. Home Depot
Home Depot (-0.50%) stands out as one of the most successful stocks historically. Since its initial public offering in 1981, the stock has soared by an astonishing 1,777,000%. This means that a $1,000 investment back then would now equate to over $17 million.
While you cannot benefit from past performance without a time machine, this history underscores the company’s dominance in the home improvement retail sector and its lasting competitive edge.
Currently, Home Depot remains an attractive option for long-term wealth growth. With the housing market anticipated to rebound as interest rates decline, now seems an opportune moment to invest in the stock.
Home Depot operates in a duopoly with Lowe’s, a dynamic that has been advantageous for both companies. This environment has allowed Home Depot to achieve substantial operating margins and high returns on invested capital. Even amid a challenging retail landscape, the company reported an operating margin of 15.3%, a notable figure for any retailer.
Its trailing 12-month return on invested capital (ROIC) stood at 31.9%, a decrease from 41.5% in the prior period due to its acquisition of SRS Distribution, yet still robust. This indicates the company’s capability to generate strong returns on new investments, thanks to its economies of scale, brand strength, and omnichannel presence.
Although the stock may appear pricey with a price-to-earnings (P/E) ratio of 25, current earnings are subdued due to housing market softness. As interest rates fall and demand for home improvement materials increases, Home Depot’s profits—and consequently its stock—are poised to rise. Furthermore, its 2.5% dividend yield offers an additional incentive for dividend-focused investors, especially those utilizing a dividend reinvestment plan (DRIP).
2. Realty Income
Realty Income (0.11%) is another real estate-centric dividend stock worth considering for wealth accumulation.
Realty Income is a real estate investment trust (REIT) that specializes in triple-net leases, wherein tenants cover maintenance, insurance, and property taxes, contributing to more predictable cash flow. The company primarily leases to recession-resilient retailers, such as convenience and drug stores, with Walgreens and 7-Eleven among its major tenants.
Currently owning over 15,000 commercial properties, Realty Income, like Home Depot, has a strong track record of outperforming the stock market, delivering a compound annual total return of 13.5% since 1994, with significantly less volatility than the S&P 500.
Renowned among dividend investors, Realty Income offers a monthly dividend and increases it each quarter. The company has declared 649 consecutive monthly dividends and raised its dividend for 107 straight quarters.
This steady growth and reliability make Realty Income a compelling choice for wealth-building.
With interest rates expected to decline, now appears to be an ideal time to invest in the stock. Lower interest rates benefit REITs like Realty Income in two ways: reducing borrowing costs and facilitating debt refinancing, thereby saving on interest expenses and supporting future growth. Additionally, declining rates make dividend stocks more appealing as bond investors shift back to them.
Realty Income currently offers a dividend yield of 5.1%, and the stock has risen nearly 20% since early July, driven by expectations of falling interest rates.
With a vast market still to capture, Realty Income is well-positioned to continue delivering steady returns around 13%, complemented by a high-yield dividend. For those seeking to build wealth, Realty Income emerges as a compelling investment choice.
