The patron sector has an extended historical past of profitable dividend shares. Warren Buffett’s Berkshire Hathaway earns an annual dividend return of greater than 50% on the unique price of its Coca-Cola place, which dates again to 1988. Procter & Gamble paid its first dividend in 1890! Although a few of these names are most likely higher to carry than purchase at this time, new buyers can nonetheless discover alternatives in shopper dividend shares.

Furthermore, many pay dividends far above the S&P 500 common of 1.6% and supply prospects for additional payout hikes. Given present situations, Goal (TGT -0.15%) and Advance Auto Components (AAP -0.24%) are two dividend progress shares that might repay nicely for revenue buyers.

1. Goal

Goal’s present annual dividend of $4.32 brings a yr return of about 2.6%. The corporate has elevated its dividend for 51 consecutive years, making it a Dividend King. Such an extended streak builds in an expectation that dividends will rise yearly. So it was notable that regardless of this ongoing stress, Goal hiked its payout by 20% this yr and 32% in 2021.

Analysts credit score Goal’s aggressive benefits with the power to extend the dividend to this diploma. Identical-day achievement, which leverages its 50-state retailer footprint, has helped to hurry retail deliveries. Moreover, so-called “shops inside a retailer,” such because the Ulta Magnificence places inside many Goal shops, seemingly additionally helped draw prospects.

Such benefits are important. Competitors from Amazon, Costco, and Walmart stays intense. Additionally, Goal warned in June that a listing overhang would weigh on earnings because it seeks to cut back its inventories. Like many different retailers, Goal over-ordered amid provide chain considerations.

The necessity to liquidate product has significantly diminished its free money circulate. Up to now this yr, Goal has reported a detrimental free money circulate of about $2.6 billion. Over the identical timeframe, the dividend price Goal $842 million, an element that will clarify why its money place has fallen to $1.1 billion, down from $5.9 billion on the finish of 2021.

Nonetheless, this is not essentially unhealthy information for buyers. Free money circulate for the primary half of 2021 got here in at $2.1 billion, a degree that ought to make Goal’s dividend sustainable. This and its capacity to considerably increase its dividend in a aggressive setting ought to bode nicely for the corporate.

2. Advance Auto Components

Advance Auto Components shareholders now obtain an annual dividend of $6.00 per share, a yield of about 3.5%. Nonetheless, buyers ought to pay attention to its latest dividend historical past.

After years of paying solely $0.24 per share in dividends yearly, Advance raised its annual dividend to $1.00 per share in 2020. The payout subsequently grew to $4.00 per share in 2021 and $6.00 per share at this time. In all, the payout jumped 25-fold over a three-year interval.

The auto components retailer has benefited from the necessity for transportation and the present state of the automobile business. Auto components is a recession-resistant enterprise as working vehicles are a high precedence for many customers. Additionally, in keeping with S&P Mobility, the typical age of a car is as much as 12.2 years, an element that may seemingly maintain auto components in excessive demand.

Nonetheless, it should compete with AutoZone, Real Components, O’Reilly Automotive, and plenty of others. Moreover, the rise of electrical autos (EVs) may stress Advance Auto over time as EVs usually use fewer components.

And like different retailers, Advance has handled a listing overhang. Free money circulate within the first half of fiscal 2022 (which ended July 16) was $97 million, down from $647 million throughout the identical interval in 2021. Additionally, the dividend hikes have led to $246 million in dividend prices over the primary two quarters of the yr.

Nonetheless, the 2021 free money circulate signifies it could possibly afford its dividend as gross sales return to regular. And even when the dividend hikes pause for a time, buyers can nonetheless earn a major money return from this inventory.