The Nasdaq fell 14% in 2022, but these 3 dividend kings ignored it
Monetary tightening is here. On Wednesday, the Federal Reserve confirmed its intention to start raising interest rates in March. Fed Chairman Jerome Powell hinted to expect the unexpected, saying the Fed would take a flexible approach to raising rates and reacting to inflation as needed.
While this is a reasonable position to take and may be the best long-term course of action, the US stock market tends to hate short-term uncertainty. Unsurprisingly, the Nasdaq Compound fell over 3% on Wednesday to give up most of those gains by the end of the day.
The Nasdaq is now down 14% so far in 2022, but 3M (NYSE: MMM), Procter & Gamble (NYSE:PG)and Emerson Electric (NYSE: EMR) are all down less than 5% since the start of the year. All three companies are Dividend Kings, which are S&P500 components that have increased their dividends for at least 50 consecutive years. Here’s what makes each dividend stock a great buy now.
Stock is a good value, but it’s time for 3M to start demonstrating improvement
Lee Samaha (3M): It’s fair to say that 3M had a disappointing 2021. The stock rose just 1.6% on the year as the company failed to fully offset cost increases (caused by soaring commodity prices and high supply chain costs). supply) through price increases.
Although 3M is not alone in this, and many company managements have referred to an unprecedented set of business conditions and pricing pressures, investors are entitled to expect a little more from 3M. . After all, CEO Mike Roman has restructured the company since taking office in 2018. However, after changing the company’s operating structure, making acquisitions and divestitures, and streamlining stock, there doesn’t seem to be any improvement in underlying profit margins. This is something 3M needs to demonstrate to investors.
That said, value investors buy stocks because they represent good value! 3M still has a collection of highly regarded companies, and its automotive business in particular could see a nice rebound in 2022 as vehicle production picks up. Meanwhile, 3M continues to generate lots of cash and is trading at a significant discount to its industrial sector peers, such as Illinois Tool Factory.
Plus, its 12-month free cash flow (FCF) of $6.5 billion easily covers its cash dividend payout of $3.4 billion (current yield of 3.3%). In the meantime, for those worried about 3M’s potential SPFA liabilities, it should be noted that if 3M traded on the price/FCF multiple of Illinois Tool Works, its valuation would be $118 billion higher. So even allowing for a (deserved) discount to its counterpart, there seems to be a significant margin of safety in the price of the stock now.
All in all, 3M is far from perfect; it is due to deliver in 2022, but its dividend is easily sustainable and management has the financial firepower to turn the tide. Based on this, the stock is a useful addition to an income-seeking portfolio.
Rightly marked up price for safe stock
Daniel Foelber (Procter & Gamble): Time and again, consumer staples giant Procter & Gamble proves its resilience in the face of a tough broader economy. It navigated with relative ease clogged supply chains, higher costs, inflation and rising interest rates. It’s no wonder, then, that P&G stock is down just 3% year-to-date.
P&G released its results for the second quarter of fiscal 2022 (FY22) on January 19. increased its planned FY22 stock buybacks from $9 billion to $10 billion, and plans to return more than $8 billion to shareholders in the form of dividends.
P&G’s forward price-to-earnings ratio of 28.4 is by no means cheap. P&G’s stock price has outpaced earnings growth, a sign that investors are willing to pay a higher price for P&G’s stable and reliable business. Throughout the COVID-19 pandemic, and now as we approach the 2022 interest rate hike period, P&G could be seen as a safe haven to store some of your portfolio in.
During times of uncertainty and high stock valuations (the U.S. stock market doubled between 2019 and the end of 2021), stocks like P&G offer a low-stress and likely less volatile way to stay invested in the market and generate income. passive. P&G has increased its dividend for 65 consecutive years. The title is currently yielding 2.1%.
This dividend darling propelled the first volatile weeks of the new year
Scott Levine (Emerson Electric): Donning its Dividend King crown for 15 years, Emerson Electric is one of the oldest Dividend Kings around – in fact, only two other companies have paid dividends longer. The company began paying dividends to shareholders in 1956 and achieved Dividend King status in 2006. While the company performed well in 2021, the first weeks of 2022 saw its share price fall further. by 2%. But this reversal of trajectory pales in comparison to the Nasdaq, which plunged during the same period.
What has been fueling bulls’ enthusiasm over the past few weeks? On the one hand, Wall Street took a favorable outlook on the stock. On January 4, RBC Capital upgraded Emerson Electric stock to outperform the sector and raised the price target from $104 to $116. The higher price target surely stood out to investors as it represented a 26% upside from the stock’s close on January 3. While Barclays and Bernstein assigned less auspicious price targets of $99 and $100, respectively, the overall sentiment for the stock seemed favorable. .
Besides the analyst outlook, investors were likely motivated to hit the buy button in response to the company’s apparent interest in green hydrogen – an area that has garnered considerable global interest over the past two years. . On January 11, Emerson Electric announced that it was helping to complete the world’s first offshore green hydrogen production project on an operating gas platform. The news ties in well with the company’s announcement in December of the acquisition of Mita-Teknik, a specialist in wind power automation solutions.
As nations strive to reduce their carbon footprints, renewable energy stocks are garnering considerable attention. And while Emerson Electric isn’t among the usual clean energy suspects, investors may be encouraged by management’s interest in the sector.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.