The stock market continues to struggle. The Nasdaq 100 index fell to new 52-week lows this week, and the S&P 500 doesn’t appear to be far behind. It’s been a rough year for investors that purely rely on capital gains for returns. However, dividend stocks can help bridge this gap by offering investors consistent income through both good and bad times.
In a downturn, you might reasonably question how safe these payouts are given the worsening economic outlook. However, all seven of these dividend stocks for passive income featured today are Dividend Aristocrats, meaning that they are companies that have raised their payments annually for at least 25 consecutive years.
This gives investors the reassurance that these companies can prosper in any environment. After all, these dividend stocks continued to hike their payments during the 1987 crash, the dot-com bust, and the 2008 financial crisis. There’s a good chance they’ll make it through this current downturn as well.
With that in mind, which of these Dividend Aristocrats are best positioned going forward? One more note, all the dividend stocks featured here pay at least a 3.5% dividend yield today. With those parameters set, let’s jump into the list.
Exxon Mobil (XOM)
Exxon Mobil (NYSE:XOM) is the largest oil and gas company in North America. It has generally been able to outpace its rivals due to skilled capital allocation and discipline on management’s part. It has stuck to its knitting rather than pursuing short-term trends or making splashy acquisitions.
Exxon Mobil’s steadiness played out to great effect over the past decade. The price of oil crashed in 2014, and most of Exxon Mobil’s peers greatly curtailed spending on new projects. Exxon Mobil, however, stayed on course and greenlit large new investments such as its offshore oil development in Guyana.
With the price of oil now back to elevated levels, crude is in great demand. And Exxon Mobil has plenty of black gold thanks to its shrewd counter-cyclical investments. The company’s refining and chemical operations are also earning unusually high profits right now thanks to shortages across the supply chain.
Investors are also rewarded for Exxon’s superior operations. The company has raised its dividend every year dating back to the 1980s despite the brutal busts in the energy industry. Shares are also selling for about nine times forward earnings today.
3M (MMM)
3M (NYSE:MMM) is one of America’s leading industrial giants. The company makes thousands of different products, ranging from Post-It notes to safety helmets, transportation equipment, and dental tools, among many others.
The company has long been viewed as a barometer of American industry. And right now, it’s pointed firmly in the downward direction; MMM stock is down by more than half from its all-time high. Economic headwinds, inflation, and various product liability suits against 3M have all weighed on the company. However, the selling has gotten way out of hand at this point. Shares now go for less than 11 times forward earnings thanks to the massive decline in 3M’s stock price.
Morningstar senior analyst Joshua Aguilar also views MMM stock as a tremendous value. He puts MMM’s fair value at $183, which suggests that shares are more than 40% undervalued today. With the stock at its currently depressed level, shares now yield a juicy 5.5%.
Clorox (CLX)
Clorox (NYSE:CLX) is the quintessential boom-and-then-bust consumer staples company. CLX stock positively skyrocketed in 2020 as the company enjoyed double-digit sales growth. Folks absolutely stocked up on cleaning supplies during the first weeks of the pandemic. And more generally, there was a fill-the-pantry approach to shopping during that era as well.
However, Clorox’s momentum quickly waned. Turns out people had bought more Clorox products than were necessary and are still using up all the supplies they bought back in 2020. Throw in some massive inflation in raw materials and transportation costs, and Clorox has seen its profitability plunge. From record results in 2020, Clorox is now earning far less than it did prior to the onset of Covid-19.
As a result, CLX stock currently looks expensive on a valuation basis, with shares trading at more than 30x forward earnings. However, that’s because the company will only earn around $4 per share this year. In fiscal year 2019, the last pre-pandemic year, Clorox brought in a much brighter $6.32 per share.
And analysts predict the company’s earnings per share (EPS) will return to $5.24 in 2024. That would put CLX stock at around 20x those more normal earnings. The world still needs cleaning supplies, and inflationary issues will be ironed out in time. Meanwhile, Clorox shares are yielding 3.75%, which is near their highest offering in many years.
Kimberly-Clark (KMB)
Kimberly-Clark (NYSE:KMB) is another staples company that has had a similar trajectory to Clorox. KMB stock initially jumped in 2020 as people stocked up on toilet paper and other pantry essentials. Since then, buying patterns have reverted to normal and Kimberly-Clark’s earnings momentum fizzled.
The company arguably has a better near-term outlook than Clorox. For one thing, Clorox relies on many chemicals as inputs; these remain elevated in price thanks to the current energy shortage. Kimberly-Clark, by contrast, relies more on wood and paper inputs; prices for these commodities have plunged in 2022.
Like Clorox, Kimberly-Clark’s earnings have also dipped from $6.89 in 2019 to an estimated $5.64 this year. Even with the dip, however, KMB stock remains attractive on a valuation basis today, with shares going for just 20 times earnings.
Analysts see Kimberly-Clark’s earnings returning to pre-pandemic levels in short order; the current outlook is for $7.02 of 2024 earnings which would put the stock at just a 16x P/E. Throw in a 4.2% dividend yield, and Kimberly-Clark is a well-positioned defensive company that throws off reliable income.
Stanley Black & Decker (SWK)
Stanley Black & Decker (NYSE:SWK) is a leading maker of power tools. The company has followed a similar trajectory to that of Colgate and Kimberly-Clark. Stanley Black & Decker sold a tremendous number of tools during 2020 and 2021. People were stuck at home and had more time and money to spend on home improvement and repair projects.
However, power tools are a durable good; people that bought a new set of equipment in 2021 aren’t going to buy more for a few years. As a result, Stanley Black & Decker’s profits have plunged in 2022 as demand has dropped dramatically. Inflationary pressures are adding to the strain as well.
But things have gotten totally out of hand. SWK stock is now down 50% from where it was selling in 2019. Earnings, by contrast, only fell from $8.40 in 2019 to an estimated $5.53 this year. That’s much less than the magnitude of the drop in the stock price.
At current earnings levels, SWK stock is going for a 13x P/E ratio. Analysts see the company’s earnings returning to pre-pandemic levels in 2024, which would put the stock at less than nine times earnings. For investors willing to wait a year or two until power tool sales recover, SWK stock offers a tremendous value at today’s price.
VF Corp (VFC)
VF Corp (NYSE:VFC) is a leading apparel company. It is a diversified play with holdings across more than a dozen different brands including Vans, The North Face, Timberland, Dickies, and JanSport. While it appeals to numerous demographics, VF has a leading position in leisure and outdoor apparel.
The company is also unique because it works as a holding company rather than betting the farm on any individual brand. It buys up apparel brands at low prices and then tries to grow them or turn them around if they were struggling.
Sometimes, VF later sells or spins off brands once they have reached a higher valuation level. This more venture capital-styled approach to brand-building has insulated VF from the typical busts that happen when a retail company falls out of touch with consumer trends.
That said, investors are still dumping VFC stock today. Inflationary pressure has hit profit margins, and now consumer spending may drop given the difficult macroeconomic backdrop. There are valid reasons for concern. However, with the stock down this far, shares are going for just 11 times earnings and offer a 7% dividend yield. That’s too cheap for this Dividend Aristocrat.
Walgreens Boots Alliance (WBA)
Walgreens Boot Alliance (NYSE:WBA) is having a rough go of it. The company enjoyed a resurgence in 2020 as people stockpiled essential health and wellness goods. However, that burst of activity has faded and the questions are back. Can Walgreens remain relevant in an increasingly challenging retail environment? And does its broader healthcare strategy make sense, particularly compared to CVS Health’s (NYSE:CVS) more aggressive approach?
However, it’s worth noting that Walgreens has raised its dividend for 47 years in a row. The company has been through a lot of twists and turns in the pharmacy industry without losing its edge.
And, fundamentally, pharmacy is hard for e-commerce to compete in compared to other industries. There are numerous points of friction that make it difficult to sell prescription drugs over the internet. On top of that, many patients want to see a pharmacist in person when making health care decisions. This should give the company some staying power. While Walgreens has challenges ahead, the stock’s 6% dividend yield is certainly high enough to appeal to income investors.
— Ian Bezek
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Source: Investor Place
