2 Stocks That Could Be an Easy Way to Build Wealth

If you want to build wealth easily, investing in the stock market is a good place to start.

This S&P500 has a history of delivering an average 9% annual return on reinvested dividends, which will help you build wealth over time. But by investing in individual stocks, you can grow your wealth even faster if you choose the right stocks.

Read on to learn about two stocks that could prove to be good choices for building wealth in your portfolio.

1. Home Depot Store

Depot House (NYSE:HD) is one of the best-performing stocks in history. The stock is up a staggering 1,777,000% since its IPO in 1981. That means a $1,000 investment would now be worth over $17 million.

Unfortunately, these accomplishments won’t be much use unless you have a time machine, but they are evidence of the company’s dominance in the home improvement retail market and its enduring competitive advantage.

Today, Home Depot still looks like a great candidate for long-term wealth accumulation. Now looks like a great time to buy shares, as the housing market is expected to rebound as interest rates fall.

Home Depot competes in a duopoly with Lowe’s. This dynamic benefited both retailers, allowing Home Depot to generate wide operating margins and high returns on invested capital. Even in a difficult retail environment, the company posted an operating margin of 15.3%, an impressive percentage for almost any retailer.

It had a 12-month return on invested capital (ROIC) of 31.9%, down from 41.5% in the prior period due to the acquisition of SRS Distribution but still a strong result. In other words, the company is well-positioned to generate a strong return on new investments thanks to its economies of scale, brand advantages and omnichannel strength.

The stock may not seem well-priced right now at a price-to-earnings (P/E) ratio of 25, but earnings are being muted by the weakness in the housing market. As interest rates fall and demand for home improvement materials increases, Home Depot’s earnings could skyrocket along with the stock. Plus, the company’s 2.5% dividend yield is a bonus for dividend investors, and you can grow your wealth faster with a dividend reinvestment plan (DRIP).

2. Income from real estate

Another real estate focused dividend stock worth buying if you want to build wealth is Real estate income (NYSE:O).

Realty Income is a real estate investment trust (REIT) that specializes in triple-net leases, meaning its tenants pay for maintenance, insurance, and property taxes. This helps make cash flow more predictable. The company also leases its properties primarily to recession-proof retailers, such as convenience stores and drug stores. For example, Walgreens and 7-Eleven are the two largest tenants.

The story continues

The company now owns more than 15,000 commercial properties and, like Home Depot, has long outperformed the stock market, achieving steady growth with a compound annual return of 13.5% since 1994. It has done this with significantly less volatility than the S&P 500 Index.

The company is a favorite among dividend investors because it pays a monthly dividend and raises it every quarter. Realty Income has declared 649 monthly dividends in a row and raised its dividend in 107 consecutive quarters.

It’s a great recipe for building wealth for any company, especially one that can generate consistent growth like Realty Income.

Now also looks like a great time to buy stocks, because falling interest rates benefit REITs like Realty Income in two ways. First, they lower borrowing costs and make it easier to refinance existing debt, saving the company money on interest costs and helping it fund future growth. Second, lower interest rates make dividend stocks more attractive, because bond investors tend to flock to dividend stocks when bond yields fall.

Realty Income currently pays a dividend yield of 5.1% and already appears to be benefiting from that outlook. Shares are up nearly 20% since early July as it looks increasingly likely that interest rates will soon fall.

The company still has a huge addressable market to penetrate and can continue to deliver consistent earnings of around 13%, with a high-yielding dividend to boot. If you’re looking to build wealth, Realty Income seems like a stock to buy.

Is it worth investing $1,000 in Home Depot right now?

Before you buy Home Depot stock, consider the following:

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Realty Income. The Motley Fool recommends Lowe’s Companies. The Motley Fool has a disclosure policy.

2 Stocks That Could Be Easy Wealth Builders was originally published by The Motley Fool