U.S. Markets close in 4 hrs 51 mins

2 Beaten-Up Stocks That Are Brilliant Dividend Plays in 2018

Daniel Miller, The Motley Fool

Williams-Sonoma (NYSE: WSM) and Polaris Industries (NYSE: PII) will rarely show up on dividend investors' screen lists because their yields fail to break 3%. But these two stocks offer savvy investors a little bit extra. After getting a little beat up in recent years, they're on the rebound, and both offer growing dividends even if they lack eye-popping yields.

Strong e-commerce story

While Williams-Sonoma's stock price managed to find some upward momentum late in 2017, the specialty retailer of high-quality home products has shed almost one-third of its value over the past three years. But despite that, its dividend has consistently increased, and currently yields a healthy 2.8%.

WSM Chart

WSM data by YCharts

What makes this company intriguing is that while many brick-and-mortar retailers are struggling to develop effective e-commerce strategies, Williams-Sonoma has its omnichannel plan figured out. In fact, during the third quarter, e-commerce revenue grew 6.4% and generated 53.1% of total revenue. Its comparable-brand revenue grew 3.3%, and it achieved those results despite an estimated $7 million in lost sales due to the autumn hurricanes.

Premium home furniture setup

Image source: Getty Images.

Some investors have hopped off the bandwagon, however, because Williams-Sonoma is spending money for the future. That includes its November acquisition of 3D imaging start-up Outward in a $112 million all-cash transaction. The plan is to extend its high-touch customer-service platform, and develop technologies with Outward's talent to transform the shopping experience and better connect virtual reality, e-commerce and its stores.

We'll see how that acquisition plays out, but it has its e-commerce business rolling, and has consistently increased its dividend. At these prices, it's a solid option for income investors looking for stocks with upside.

Brand power matters

Talk about a no good, awful, very bad couple of years: Polaris had a particularly rough time in 2015 and 2016 after a series of vehicle recalls for fire hazard risks pounded the company's earnings. Similar recalls continued to weigh on the company until operations finally came close to reaching pre-recall levels toward the end of 2017 -- resulting in a strong bounce in the stock price.

PII Chart

PII data by YCharts

Polaris' revenues ticked upward over the past year, thanks in part to growth in motorcycle sales at the expense of Harley Davidson, and in part to its acquisition of Transamerican Auto Parts. Management is  confident enough in its ability to pressure Harley-Davidson even more over the long-term that it was willing to axe its Victory brand.

Investors also shouldn't underestimate Polaris' brand power as a leader in powersports, where it features innovative products and increasingly lean operations. It's that brand power that helped it regain market share after nearly two years of quality and recall setbacks. The good news is that if management can simply build on the momentum it achieved at the end of 2017, this year should be another strong step forward. And even though its dividend only yields 1.7%  it's consistently growing, and the stock could offer upside in 2018 and beyond.

More From The Motley Fool

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Polaris Industries. The Motley Fool recommends Williams-Sonoma. The Motley Fool has a disclosure policy.