Top 3 Dividend Kings for H2 2022
Jhe first half of 2022 marked the worst start to a year for the US stock market in more than 50 years. Between 40 years of high inflation, a weakening housing market, rising interest rates, high prices at the pump and lingering geopolitical tensions, there’s a lot to digest as investors ponder the best way to position their portfolios for the second half of 2022 and beyond.
While it may be tempting to sell everything and walk away, a better approach is to ensure you own companies that have what it takes to survive a prolonged bear market and/or recession. Nucor (NYSE: NUDE)Procter & Gamble (NYSE:PG)and 3M (NYSE: MMM) stand out as three particularly good buys now. Here’s why.
Galvanize your portfolio with Nucor
Nucor is the largest US-based steel company by market capitalization. But the steel industry is highly cyclical, leading to large swings in earnings, even for a leader like Nucor. For example, in 2020 Nucor experienced a down year as demand for steel came to a halt during the height of the COVID-19 pandemic. Fast forward to 2021, however, and Nucor has posted record revenues. The stock hit a record high in April but has since fallen 34% in the past three months as investors fear a recession could lead to lower demand, even in a supply chain environment restricted.
To offset this cyclicality, Nucor has built a reputation for returning value to shareholders through share buybacks and dividend increases. Over the past five years, Nucor has reduced its number of shares outstanding by more than 16% by repurchasing its own shares, which increases earnings per share for existing shareholders. Additionally, Nucor is now on the coveted list of Dividend Kings, which are S&P500 components that have paid and increased their dividends for at least 50 consecutive years.
This means that Nucor paid and increased its dividend every year throughout the high inflation period of the 1970s, the recession of the 1980s, the dot-com collapse of the early 2000s, the financial crisis from 2007 to 2009, the US-China trade war and COVID-19. 19 pandemic.
Nucor has spent the last boom years strengthening its underlying business, primarily through key acquisitions. This way it is better positioned for future downturns. Nucor cannot control the vagaries of the broader market. But he can boost shareholder confidence through buyouts and dividend increases, and by demonstrating he’s the best of his breed. Dividend investors would be wise to view the recent sale of Nucor shares as a buying opportunity.
An actor you can count on
Procter & Gamble (P&G) is one of the largest US consumer staples companies by market capitalization. Known for its major brands such as Tide, Pampers, Charmin, Bounty, Gillette, etc., P&G has for decades delivered low to mid-single digit organic growth regardless of the market cycle. In many ways, P&G is the ultimate player in a diversified portfolio. It is likely to underperform a strong bull market, but it is also likely to outperform a bear market, as its activity is less correlated to the broader economy than more cyclical industries like steel, construction and consumer discretionary.
So far this year, P&G stock is down just over 11%. But it is much better than the broader indices.
The low volatility of P&G stocks is ideal for dividend investors or retirees who care more about capital preservation than capital appreciation. Investors with shorter time horizons cannot afford massive declines in the companies they own and generally prefer not to invest in high growth stocks or cyclical companies. Not only does P&G succeed regardless of the market cycle, but it’s also one of the oldest dividend kings – having paid and raised its dividend for 66 consecutive years.
In the past, P&G has tried to grow its business by expanding into new geographies and increasing the number of its brands. But since its restructuring between fiscal years 2015 and 2017, P&G has been a much leaner company that focuses solely on its core brands and product categories and achieves much of its growth through stock buybacks.
With a dividend yield of 2.5%, P&G provides a reliable source of passive income, even in times of recession.
A high-yield mainstay in the bargain bin
Unlike Nucor and P&G, which have demonstrated exceptional capital allocation and management, 3M is much more mixed. It has been an underperforming market for years and is currently within striking distance of an eight-year low. 3M’s underperformance, coupled with dividend increases, pushed its dividend yield up to 4.6%, making it one of the most productive stocks in the market. Dow Jones Industrial Average. However, 3M needs to prove it can do a better job of battling inflation and supply chain constraints, which have so far weighed on its profit margins and growth.
3M has its fair share of problems, but investors are getting a good price for the stock. It has a price-to-earnings ratio of just 13.4 – which is the cheapest 3M stock in over a decade. Given its mismanagement during this economic downturn, I wouldn’t count on 3M to turn its business around anytime soon. But when it comes to high-yielding dividend-paying stocks that are likely to continue paying and growing their dividends, 3M stands out as an inexpensive option to consider now.
Get peace of mind with this dividend basket
Investing equally in Nucor, P&G and 3M gives an investor a 3% dividend yield and exposure to three completely different sectors of the economy. In times of high volatility, investors can take comfort in knowing that all three companies have what it takes to survive a multi-year recession. Additionally, all three companies generate revenue without the need to sell stocks at lower prices, allowing for more patience and letting the stock market downturn take its course.
10 stocks we like better than Nucor
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and Nucor wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of June 2, 2022
Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool recommends 3M. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.