3 Dividend Stocks That Could Beat the S&P 500 in the Second Half of 2024

Many dividend stocks tumbled over the past two years as rising interest rates made fixed-income investments like CDs and T-bills more attractive. That pressure should persist over the next few quarters unless interest rates finally decline.

But that doesn't mean investors should shun all dividend stocks. Instead, they should focus on a few lower-yielding blue chip stalwarts that have a good shot at beating the S&P 500 this year.

I believe these three stocks fit the bill while offering a good mix of growth, value, and income: Costco Wholesale (NASDAQ: COST), Walmart (NYSE: WMT), and Apple (NASDAQ: AAPL). Here's why.

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1. Costco

Costco only pays a forward yield of 0.6% right now, but it's raised its dividend annually for 21 consecutive years and still has a low payout ratio of 26%. If you had invested $10,000 in Costco 10 years ago and consistently reinvested its dividends, your stake would be worth about $90,100 today and paying out $550 in annual dividends.

Costco's stock has rallied nearly 30% so far this year and beaten the S&P 500's 15% gain. The bulls rushed to the warehouse retailer as it gained new members, opened new stores, and expanded its margins by growing its e-commerce sales. In the third quarter of fiscal 2024 (which ended on May 21), its number of cardholders grew 7% year over year to 133.9 million as its worldwide renewal rate held steady at 90.5%. Its total store count also rose 3% to 878 locations.

Analysts expect Costco's revenue and adjusted earnings to grow 5% and 15%, respectively, in fiscal 2024 (which ends in September) as it locks its members into its sticky subscriptions, subsidizes its lower-margin products sales with its higher-margin subscription revenue, and leverages its scale to secure lower prices from its vendors. The stock might seem pricey at 48 times forward earnings, but Costco's strengths should support its premium valuation and drive the shares even higher.

2. Walmart

Walmart pays a forward yield of 1.2% with a low payout ratio of 33%, and it's a Dividend King that has raised its payout annually for 51 consecutive years. If you had invested $10,000 in Walmart's stock a decade ago and reinvested your dividends, your investment would be worth $33,250 and paying out more than $400 in annual dividends.

The stock has also rallied nearly 30% this year as the retailer impressed bulls with its consistent growth in a challenging macro environment. Walmart consistently grew by expanding its e-commerce marketplace, turning its own stores into fulfillment centers for online orders, matching Amazon's prices, and rolling out its own Walmart+ subscription plans to counter Amazon Prime.

The mammoth retailer also kept pace with Costco in the warehouse retail market with its Sam's Club stores, and it continued to expand its overseas banners and e-commerce sites across 19 other countries.

Walmart's scale and diversification have enabled it to flourish as other big-box retailers have faltered. For fiscal 2025 (which ends next January), analysts expect its revenue and adjusted earnings per share (EPS) to rise 4% and 9%, respectively. It's still reasonably valued at 28 times forward earnings -- and it could head even higher as the economy gradually improves.

3. Apple

Apple only pays a forward yield of 0.5%, but it has raised its payout annually for 13 consecutive years and still has a low payout ratio of 15%. Over the past 10 years, a $10,000 investment in the tech titan would have grown to about $105,270. It would also be paying out more than $520 in annual dividends.

Apple underperformed the S&P 500 with a year-to-date gain of 11%, but I believe three tailwinds could drive the stock to outperform the market in the second half of the year. First, its iPhone shipments could stabilize as it rolls out the iPhone 16, pushes back against its Chinese competitors, and ramps up its expansion in India. Second, its services segment -- which already serves more than 1 billion paid subscribers -- should continue growing as it rolls out new services. Lastly, its new generative artificial intelligence (AI) tools could complement that growth by locking more users into its ecosystem.

Analysts expect Apple's revenue and earnings to increase 8% and 15%, respectively, in fiscal 2024 (which ends this September) as those tailwinds kick in. Those are solid growth rates for a stock that trades at 29 times forward earnings, and its $162 billion in cash and equivalents give it ample room for bigger buybacks and acquisitions. Therefore, I believe Apple has a clear shot at outperforming the S&P 500 and many other blue chip tech stocks through the end of the year.

Should you invest $1,000 in Costco Wholesale right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Leo Sun has positions in Amazon and Apple. The Motley Fool has positions in and recommends Amazon, Apple, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.