Breaking News
Investing Pro 0
🚨 NDVA surged 43% - these 3 AI stocks could be next Start Free Trial

2 Dividend Kings to Buy and Hold for the Rest of the Year

By Jesse Cohen/Investing.comMarket OverviewJan 18, 2023 08:13AM ET
www.investing.com/analysis/2-dividend-kings-to-buy-and-hold-for-the-rest-of-the-year-200634459
2 Dividend Kings to Buy and Hold for the Rest of the Year
By Jesse Cohen/Investing.com   |  Jan 18, 2023 08:13AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
+1.30%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MMM
-0.11%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ITW
+1.43%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PH
+1.76%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HON
+0.77%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
PEP
-0.12%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • Uncertainty over the Federal Reserve’s rate plans and a slowing economy will continue to impact investor sentiment in 2023
  • I remain bullish on companies with strong fundamentals, reasonable valuations, and growing dividend payouts amid the current market environment
  • I recommend buying PepsiCo and 3M to hedge against further volatility in the new year

Fixed-income stocks have been in demand lately amid growing signs that the economic recovery is faltering due to the Federal Reserve’s ongoing plans to raise interest rates to combat persistently high inflation.

While non-profitable high-growth tech companies have fallen out of favor, defensive-minded value stocks with strong dividends and sound financials have outperformed the broader market by a wide margin amid the current backdrop.

Indeed, the ProShares S&P 500 Dividend Aristocrats ETF (NYSE:NOBL) - a measure of companies that have increased their dividends annually for the last 25 years or more - has fallen 4.5% over the past year, compared to the S&P’s 14.4% decline.

NOBL vs. S&P 500 Daily Chart
NOBL vs. S&P 500 Daily Chart

As such, I recommend buying shares of PepsiCo (NASDAQ:PEP) and 3M Company (NYSE:MMM), given their solid fundamentals, reasonable valuations, healthy balance sheets, and enormous cash piles. Perhaps of greater importance, both companies have long histories of dividend increases, making them attractive plays during this volatile time in the market.

PepsiCo

  • *Year-To-Date Performance: -2.5%
  • *Market Cap: $245.4 Billion

PepsiCo meets my strict criteria of profitable value companies that do well in challenging macroeconomic environments. The global food, snack, and beverage giant - best known for producing its namesake Pepsi Cola carbonated soft drink, as well as a wide variety of snacks, including corn, potato, and tortilla chips - has proven over time that it can withstand a slowing economy and still provide investors with increasing dividend returns.

In fact, PepsiCo has raised its annual dividend for 50 straight years, and shares currently yield 2.62%, which is soundly above the 1.59% implied yield for the S&P 500 index. With the dividend payout ratio above 60% for the current fiscal year, the consumer defensive company will likely announce its 51st consecutive yearly dividend increase in 2023.

PEP Payout History
PEP Payout History

Source: InvestingPro

Looking ahead, I believe Pepsi is well-placed to achieve ongoing growth amid the difficult operating backdrop as consumers divert more spending into basic needs. The well-diversified consumer products company operates in 200 countries and sells a wide range of items that people consume regardless of economic conditions.

PepsiCo currently has 23 brands in its portfolio that produce over $1 billion in annual sales, including notable soft drinks such as Pepsi, Mountain Dew, Gatorade, and Lipton Tea, as well as recognizable snack labels like Lay’s, Fritos, Doritos, Cheetos, and Quaker Foods.

As such, I expect the company to put in a solid performance in 2023, with shares likely to break out to new all-time highs, thanks to its strong track record of shareholder returns combined with its leading position in the food, snack, and beverage space.

PEP Daily Chart
PEP Daily Chart

PEP - which rose to a record peak of $186.84 on Dec. 13 - closed at $176.06 last night. At current levels, the Purchase, New York-based beverage-and-convenience food company has a market cap of $245.4 billion. Shares are down 2.5% so far in 2023 after scoring an annual gain of 4% in 2022.

The next major catalyst is expected to arrive next month when PepsiCo reports fourth-quarter financial results before the U.S. market opens on Feb. 9. Consensus calls for Q4 earnings per share of $1.65, improving 7.8% from the year-ago period, while revenue is expected to climb roughly 6% year-over-year to $26.7 billion. If confirmed, that would mark the highest quarterly sales total in its history, driven by fresh price increases for its sodas and snacks.

PEP Earnings vs. Forecast
PEP Earnings vs. Forecast

Source: Investing.com

Pepsi has either matched or topped Wall Street’s profit expectations in every quarter dating back to Q1 2012, while missing sales estimates only twice over the same period, demonstrating the strength and resilience of its underlying business.

3M

  • *Year-To-Date Performance: +5.6%
  • *Market Cap: $70 Billion

Despite facing several headwinds, such as mounting costs, rising geopolitical tension, and most recently, litigation over faulty ear plugs, 3M has certainly lived up to its billing as a top defensive stock for a market downturn due to its proven ability to generate strong free cash flow, allowing it to return more capital to shareholders over time.

Not only do shares of the industrial giant currently yield a market-beating 4.60%, but the company has raised its annual dividend for 52 years in a row, highlighting its exceptional track record when it comes to returning cash to investors.

MMM Payout History
MMM Payout History

Source: InvestingPro

In addition, 3M also boasts an extremely cheap valuation. With a forward price-to-earnings (P/E) ratio of 11, MMM stock comes at a substantial discount when compared to some of its notable competitors, such as Honeywell (NASDAQ:HON), Illinois Tool Works (NYSE:ITW), and Parker-Hannifin (NYSE:PH), which trade at 26.9 times, 26.4 times, and 32.3 times forward earnings, respectively.

Based on its valuation metrics, I reckon that 3M’s stock could be underrated by some investors who focus mostly on the company's near-term challenges. However, it’s important to remember that the materials conglomerate has a resilient business that has successfully weathered plenty of storms in the past.

MMM Daily Chart
MMM Daily Chart

MMM stock - which fell to a recent 52-week low close to $107 to reach its worst level since 2013 - ended Tuesday’s session at $126.60. Shares, which have bounced off their October lows along with the major stock indices, are up 5.6% through the first few trading weeks of 2023 after suffering an annual loss of 32.5% in 2022.

In my view, 3M will finally see shares bottom this year thanks to receding concern over the company’s long-term growth prospects as it starts to reap the benefits of its ongoing operational restructuring actions, portfolio adjustments, and cost-cutting measures.

Unsurprisingly, the average fair value for MMM stock on InvestingPro according to a number of valuation models - including P/E multiples - implies 28.1% upside from the current market value over the next 12 months to about $163/share.

3M is scheduled to deliver Q4 numbers on Tuesday, Jan. 24 before the opening bell. Consensus calls for EPS of $2.37 per share, rising 2.6% from the year-ago period, while revenue is expected to decline 6.2% year-over-year to $8.07 billion.

MMM Earnings vs. Forecast
MMM Earnings vs. Forecast

Source: Investing.com

All in all, 3M looks poised to rebound, barring any catastrophic legal outcomes. The diverse manufacturing company checks most of the marks on my list which helps me identify high-quality blue-chip companies with strong dividends and attractive valuations to add to my portfolio, regardless of what condition the economy is in.

Disclosure: At the time of writing, I am long on the S&P 500 and Nasdaq via the SPDR S&P 500 ETF (SPY) and Invesco QQQ ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (XLK). The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.

2 Dividend Kings to Buy and Hold for the Rest of the Year
 

Related Articles

2 Dividend Kings to Buy and Hold for the Rest of the Year

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
AIT OUBELLA Marouane
dogofallstreets Jan 20, 2023 9:29AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Good read, 2 companies with solid financial history.
Jeff Gordon
Jeff Gordon Jan 19, 2023 7:48PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
good read. I picked up some 3m today on the pullback. I'll average more in if we move higher. divided stocks are my thing these days
Dino Shalti
Dino Shalti Jan 18, 2023 11:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
at a market like, u do nt buy stovks,only sale,stop mistakingvpeople
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email