All It Takes Is $21,500 Invested in Each of These 2 Dow Dividend Stocks to Help Generate Over $1,000 in Passive Income in 2026
Key Points
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Home Depot’s struggles will persist until interest rates fall and the housing market recovers.
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Nike is one of many consumer discretionary companies experiencing a steep sales slowdown.
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Home Depot and Nike consistently raise their dividends and could be excellent values for long-term investors willing to ride out a potentially prolonged downturn in consumer spending.
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The Dow Jones Industrial Average (DJINDICES: ^DJI) will celebrate its 130th anniversary next year. Although the composition of the Dow Jones has undergone significant changes, its core structure remains the same.
Unlike the S&P 500‘s (SNPINDEX: ^GSPC) hundreds of components of the thousands of stocks in the Nasdaq Composite, the Dow has just 30 names, which act as representatives of their respective sectors.
The vast majority of Dow components pay dividends — many with multidecade track records of increasing their payouts.
Home Depot (NYSE: HD) and Nike (NYSE: NKE) are two Dow stocks that are down year to date despite a more than 15% rally in the S&P 500. Investing $21,500 into each stock could help you generate over $1,000 in passive dividend income per year. Here’s why both dividend stocks are great buys now.
Image source: Home Depot.
Home Depot is poised to thrive when the housing market recovers
It’s been a rough few years for Home Depot. The home improvement giant benefited from a surge in do-it-yourself projects and low interest rates that encouraged home buying and renovation projects during the pandemic. But the stock price, along with earnings, has gone practically nowhere over the last four years.
Home Depot is heavily dependent on the housing market, which has been bogged down by high mortgage rates, relatively unaffordable housing, low existing home sales, and consumers who are spread thin because of high credit card balances. In the current climate, there are many reasons individuals and families may delay buying a home or push back a home improvement project.
Despite the industrywide slowdown, Home Depot has been proactively building for the future by expanding its store footprint and through the $18.25 billion acquisition of SRS Distribution. SRS is focused on contractors, especially roofing products, which could be a nice pairing for Home Depot retail outlets.
As my colleague Lawrence Rothman points out, Home Depot has a larger store footprint, customer base, and return on invested capital than its peer Lowe’s — making it an overall better choice for long-term investors. Home Depot also returns a boatload of cash to shareholders through a growing dividend — although its most recent raise was the lowest on a percentage basis in 15 years — which makes sense given the challenging operating environment.
Still, with a 2.4% yield and a decent valuation, Home Depot is a good choice for long-term investors looking for a simple way to play an eventual recovery in residential construction, consumer spending, and the housing market.
Nike’s turnaround is progressing painfully slowly
Over the last few years, Nike has transformed from a high-flying growth stock to a beaten-down value stock with a solid yield. Twenty-three consecutive years of dividend raises, paired with Nike being down around 46% in the last five years, have pushed its yield up to 2.3%.
Nike has a great brand, but it could be a mistake to discount the severity of its downturn.
Consumer-facing companies, especially discretionary ones like Nike, have been hit hard by a slowdown in consumer spending. Higher cost of living is pinching the purse strings of many households. Under these conditions, a new pair of Nike sneakers isn’t a priority.
And to make matters worse for Nike, newer brands like Deckers Outdoor-owned Hoka and On Holdings have been going after Nike’s market share — especially in running. But even these companies are cooling off, with Deckers crashing to a 52-week low last week — guiding for no earnings growth this year.
Nike is a good buy for investors who believe in its brand, but the near-term results are showing few signs of improvement. Revenue has flatlined, and margins are under pressure as Nike works to cut costs and improve profitability.
Investors should be on the lookout for how Nike’s sales recover in China, if it makes good on its promise to improve product innovation, how it balances wholesale versus direct-to-consumer sales, and how it manages costs.
Nike is in a bad pattern of overpromising and underdelivering, so it’s reasonable that some investors may not want to consider the stock even though it’s so beaten down. That said, patient investors with a long-term time horizon may want to take a closer look at Nike, especially those looking to balance a growth-heavy portfolio with non-tech stocks.
Two contrarian picks for long-term investors
Home Depot and Nike highlight the bifurcation in today’s economy between consumer-facing companies and business-to-business companies. Their underperformance is also a reminder of how the stock market isn’t always representative of the broader economy. Folks with assets, like stocks, real estate, cryptocurrency, precious metals, and even trading cards, are benefiting from record-high prices. However, folks whose buying decisions are dictated by the timing of each paycheck are spread thin and pulling back on discretionary purchases.
The consumer discretionary sector has real challenges, so don’t expect a rapid recovery. At times like this, value investors may want to consider approaching the sector through industry leaders like Home Depot and Nike. When the cycle turns, these companies have a clear path to benefit. There are always lesser-known names at even cheaper valuations with higher yields. But risk-averse investors may find it easier to keep it simple by going with blue chip Dow Jones stocks.
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Daniel Foelber has positions in Nike. The Motley Fool has positions in and recommends Deckers Outdoor, Home Depot, Nike, and On Holding. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.