A variety of factors shook up financial markets in 2022: decades-high inflation, the war between Russia and Ukraine, ongoing supply chain issues, and soaring interest rates, to name a few. With the S&P 500 index down 19.7% year to date and stocks across several sectors falling as much or more, there haven’t been many places for investors to hide from negative returns.

Fortunately, there were a few high-quality dividend-paying stocks that generally performed well this year. Here are three world-class dividend stocks that investors seeking growing income would be wise to consider buying during this volatile time in the market.

1. Johnson & Johnson: 60 consecutive years of dividend growth
Johnson & Johnson’s (JNJ) $469 billion market capitalization makes it the largest drugmaker in the world by more than $100 billion. The company’s product portfolio is also unrivaled: Including its COVID-19 vaccine, J&J sells more than a dozen products in its pharmaceutical segment that are on pace to surpass $1 billion in sales for 2022.

These are led by the mega-blockbusters ($5 billion or more in annual sales), including the immunology drug Stelara and the cancer therapy Darzalex.

And with more than 100 projects currently in clinical development in promising therapeutic areas like immunology and oncology, J&J should have no problem launching more blockbusters. When paired with a dividend payout ratio that will come in around 44% in 2022, there should be plenty of room for the Dividend King to build on its six-decade payout growth streak.

Income investors will also appreciate that J&J’s 2.6% dividend yield is meaningfully above the S&P 500 index’s 1.8% yield. And the stock’s forward price-to-earnings (P/E) ratio of 17.5 is slightly below the S&P 500 healthcare sector’s forward P/E of 17.8. This makes it a buy for dividend investors.

2. PepsiCo: 49 straight years of dividend hikes
PepsiCo (PEP) products — iconic brands like Pepsi-Cola, Lay’s potato chips, and Gatorade sports drinks — are consumed in just about every country in the world.

Combining new product launches with strategic acquisitions (like the at-home carbonated drink maker SodaStream in 2018) has paid off. That is why analysts are projecting 8.2% annual earnings growth over the next five years from its consumer staples.

PepsiCo currently yields 2.6%, and the dividend payout ratio clocks in below 66% for 2022, so the dividend should be sustainable. With its next dividend hike, PepsiCo will has raised its annual dividend for 50 straight years.

The company’s forward P/E of 26.4 is significantly higher than the 21.4 average in the S&P 500 consumer staples sector. But if any stock deserves such a lofty premium, it’s PepsiCo.

3. NextEra Energy: 28 uninterrupted years of payout raises
With its electrical grid powering the homes of over 12 million people throughout Florida, NextEra Energy (NEE) is one of the most dominant electric utilities in the world.

As Florida continues to attract more residents, the demand for electricity will certainly increase. This is why analysts believe that NextEra Energy will deliver 10.4% annual earnings growth through the next five years.

The stock’s 2.1% payout yield should appeal to dividend investors. And with the payout ratio set to be under 60% in 2022, double-digit dividend growth can persist.

NextEra Energy’s forward P/E of 28.8 is significantly above the 19.5 average in the S&P 500 utility sector. The stock is arguably the best utility out there, but this steep premium is why investors might want to wait for a bit of weakness in the share price before aggressively buying.

— Kody Kester

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Source: The Motley Fool