With the Fed Holding Interest Rates Steady, Here's the Smartest Dividend Stock to Buy With $1,000 Right Now

The Federal Reserve decided to hold short-term interest rates steady at its recent meeting. While noting solid economic activity, the central bank also mentioned uncertainty caused by the Iran war. Eight members expect to keep rates the same this year, but nine project higher federal funds rates.

Subsequently, the U.S. and Iran signed a memorandum of understanding, giving the countries two months to work out an agreement, and oil prices subsequently slid. However, the situation remains fluid.

Given this uncertainty. TJX Companies (NYSE: TJX), with strong business fundamentals and growing dividends, offers investors an appealing potential total return.

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Drawing customers

TJX's retail brands actually attract more customers during times of economic stress. Its chains, which include TJ Maxx, Marshalls, and HomeGoods, are off-price retailers selling apparel and home fashions.

That means they opportunistically purchase merchandise. And TJX has more leverage and buying opportunities during challenging economic times.

The company does well during ordinary times, but its sales growth has accelerated recently. That's due to consumers struggling with higher prices and an uncertain job market.

TJX's fiscal first-quarter 2027 same-store sales (comps) jumped 6%, with increases across all of its divisions. This helped drive its diluted earnings per share 29% higher. The results were for the period that ended on May 2. Management expects a very healthy 3% to 4% comps gain for the year.

The company's not a mature retailer, either. It continues to open new locations, adding 48 in the first quarter and ending the quarter with 5,262 stores.

Higher payments

Shareholders will also appreciate the regularly increasing dividend payments. The board of directors raised June's quarterly dividend by nearly 13% to $0.48 per share.

TJX has increased dividends for 29 out of the last 30 years. The exception came during the early days of the COVID-19 pandemic in 2020, when the company took the understandable decision to suspend payouts.

Investors shouldn't worry about TJX's ability to afford the payments. The stock has a payout ratio, or dividends compared to earnings, of just 34%.

The shares have a 1.2% dividend yield, based on the new quarterly dividend rate. That might not sound exciting, but it's higher than the S&P 500 index's 1.1%. Besides, investors can count on receiving higher dividends down the road.

The dividend yield combined with TJX's capital appreciation potential makes the stock a compelling buying opportunity for investors with a long-term view.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends TJX Companies. The Motley Fool has a disclosure policy.