With stocks off to one of their worst starts to the year since the 2008-2009 financial crisis, it’s no longer crazy to talk about a sustained period of market volatility or a prolonged “risk off” environment on Wall Street.
The S&P 500 index SPX, +0.69% has fallen 5.3%% year-to-date through Monday’s closing bell. And many one-time growth darling as doing even worse; Netflix is down nearly six times that amount, and Peloton PTON, +2.52% is down more than four times that amount.
If ever there was a time to consider sleepy but stable dividend stocks, now is the time. The following five stocks are all names that, frankly, haven’t done so well over the last 12 months. But they share massive scale and comfortable profitability that ensures they can weather whatever short-term volatility we see over the coming months. Furthermore, they offer generous yields that offer an incentive to buy and hold until the dust settles.
They may not be as sexy as the highflying tech stocks or biotechs that made swing traders a bundle a year or two ago. But these five unloved dividend stocks are definitely worth a look right now.
AT&T T, -4.24% is a stock that many investors have turned up their nose at recently, as shares have slumped 25% from their 52-week high back in May 2021. A big reason is uncertainty around the planned spinoff of it WarnerMedia operations and subsequent mashup of those asset with Discovery Inc. DISCA, -2.65%
But given the share-price drop and the appeal of legacy AT&T assets in what is increasingly appearing to be a “risk off” environment in 2022, it may be worth jumping in to this telecom blue chip even without total clarity on the spinoff.
Consider AT&T once gain revealed strong earnings with the fourth-quarter numbers that dropped on Jan. 26; it led US wireless carriers in 2021 subscriber growth and topped revenue expectations. Its sprawling operations rake in $150 billion in annual revenue and is consistently profitable.
Yes, the lack of clarity around the spinoff makes it hard to see for certain what will be left. But frankly, some of the action in late 2021 was pricing AT&T as if it was selling off the most attractive part of its business – and shares now yield a staggering 8.6% thanks to the discount. AT&T has been clear that a dividend cut will come as part of this spinoff of WarnerMedia, but even a whack of 20% to those distributions leaves investors with a 6.6% payday at $25 a share – more than four times the typical S&P 500 stock.
True, you’d be taking some leaps of faith on what the dividend is or how the remainder of AT&T will be priced. And you’d have to deal with the spinoff shares you’re awarded later this year. But this entrenched telecom is a quintessential risk-off play, and it has been deeply discounted to account for all this uncertainty.
Considering all the other unknowns investors are dealing with, sticking your neck out on AT&T may seem less of a gamble than other corners of the market right now.
Amid the surge for oil prices, it has been fashionable for swing traders to pile into energy explorers for a quick win. But for income-oriented investors with a more risk-averse approach and a long-term horizon, it may pay to skip the “upstream” production and go to the more reliable “midstream” distribution segment of the energy market.
Magellan Midstream Partners MMP, +1.96% is a great example of these opportunities. This is a $10 billion stock that is mainly engaged in storage and transportation of crude oil and various petroleum products including gasoline, kerosene and heating oil.
Again, Magellan Midstream isn’t drilling and thus exposed to whatever the current market prices are – it’s simply a middleman that makes its money moving fossil fuels around its network of pipelines that span some 2,200 miles or storing them in facilities with about 37 million barrels of total capacity.
The downside of this is that the stock has missed out on the surge in oil prices. While Big Oil companies like Exxon Mobil XOM, +6.41% have tacked on 69% in the last 12 months, Magellan has squeaked out a meager 10%–roughly half of the S&P 500 in the same period. But the upside is that this unglamorous, slow-and-steady business is very likely to keep chugging along unbothered by any ups and downs on Wall Street or in energy prices.
And by the way, Magellan Midstream is structured as a partnership and has a mandate for big dividends to juice the total return. With a current yield of 8.6%, even if shares don’t really move much, you can bank on a meaningful payday over the next year thanks to the quarterly payouts alone.
Over the last 12 months, Switzerland-based drugmaker Novartis NVS, +1.46% NOVN, -3.44% declined about 4% compared with gains of almost 22% for the S&P 500 in the same period. But there are reasons for long-term, income-oriented investors to give this stock a look.
For starters, it is a roughly $200 billion global healthcare powerhouse that books more than $50 billion in annual revenue and net operating cash flow of more than $12 billion a year. With numbers like that, Novartis isn’t going anywhere even if it has faced short-term headwinds.
Equally important is that the company is on track to book $6.62 in earnings per share for fiscal 2022. They more than cover the once-annual dividend which was about $3.38 last year and currently rounds out to a yield of 3.8%.
The share price admittedly got a bit ahead of itself, as did many healthcare stocks over the last year or two. But while Novartis is among the many firms involved with COVID-19 vaccines, its massive operations are so much more than a play on the pandemic. Its drugs include treatments in areas such as ophthalmology, neuroscience, immunology, dermatology, cardiovascular disease – and a host of others.
And if that substantial profitability, substantial yield and diversified healthcare operation isn’t enough to entice you, consider that Novartis is valued at just under 13 times forward earnings. That’s substantially under the forward P/E of about 20 for the S&P at large. Investors will be paying a fair price for Novartis at these levels instead of depending on significant future growth to justify current share prices.
Consumer goods giant Unilever UL, -0.51% ULVR, +0.17% UNA, +0.10% is a great example of a high-quality stock that could be a bargain after recent underperformance. It’s down about 12% in the last 12 months while the S&P has risen almost twice that amount in the other direction, but has a powerful brand and entrenched operations that ensure it will weather the recent downturn successfully.
The U.K.-based firm posts more nearly $6.6 billion in annual net profits on almost $56 billion in revenue. And its segments are divided up nicely, too, with diversification across home and personal care. Specifically, in 2020 (the most recent full year data available) about 14% of revenue came from its “fabric” home care operations that include its Comfort detergent line, 13% from “ice cream” such as the Ben & Jerry’s brand and 12% from “skin cleansing” that include brands like Dove and Axe personal care products.
Small wonder that Unilever can reliably offer up a generous quarterly dividend that added up to about $2.03 last year and annualizes out to a yield of almost 4.0% at current pricing. Sales trends in consumer staples are generally very stable, but the added diversification of Unilever’s massive and varied operations add an extra level of comfort for risk-averse investors.
Particularly if you’re worried about overvalued tech stocks or the risk of inflation and higher rates eating into discretionary sales, the steady long-term nature of UL stock is worth noting.
Though technically a “regional” bank by the definitions of Wall Street, U.S. Bancorp USB, +1.86% is anything but a local outfit with a handful of branches. It boasts roughly 70,000 total employees manning about 2,500 bricks-and-mortar offices across 26 states, mainly in the Western half of the U.S. As of 2021, total assets were sitting at just shy of $600 billion.
Yes, it doesn’t have the same degree of complex investment services like Wall Street icons like Goldman Sachs GS, +2.64%, and it is admittedly more reliant on the humdrum business lines of mortgages, consumer credit and small business banking services than megabanks like JPMorganChase JPM, +1.72%. But what U.S. Bancorp lacks in flash it makes up for in scale – and that provides for generous margins thanks to ample reserves and back-office efficiencies.
Admittedly, this lender missed its fourth-quarter earnings slightly with $1.07 in EPS vs. consensus estimates of $1.11, thanks in part to rising expenses. But generally speaking the details are encouraging including growing loan and deposit figures. And while there was a bit of chatter about rising interest rates during the fourth quarter, it really has been in January that we saw real movement; the rate on 10-year Treasurys TMUBMUSD10Y, 1.774% has jumped from 1.5% to about 1.8%. That rates tailwind will only help results going forward.
Even if we continue to see markets struggle into February, this is a stock that’s secure no matter what happens in the coming weeks. It yields 3.2% at current pricing, is neck-and-neck with PNC Financial Services PNC, +1.82% as the largest regional bank in the nation and is forecasting earnings per share of $4.34 this fiscal year on annual dividends of just $1.84. That’s more than enough cushion in profits to support or even increase distribution, and keep shares stable amid any short-lived volatility on Wall Street.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the stocks mentioned in this article.