The last year was loaded with concerns over the stubbornly high inflation, aggressive interest rate hikes, and the possibility of a recession. Fed officials signaled at their December meeting that economic growth would slow sharply in 2023, and unemployment would march substantially higher to a rate of 4.6%.
However, the cooling inflation, as evident from the lower-than-expected inflation data in October and November 2022, could boost the odds of a soft landing. Goldman Sachs bets that the U.S. economy will avoid a recession and move towards a ‘soft landing’ where inflation moderates but growth continues.
On the other hand, according to a Bloomberg monthly survey of economists, the probability of a downturn in 2023 climbed to 70% in December, up from 65% in November. The signs of a recession are flashing brighter this year as many see an overwhelming chance that the economy will sink into a recession as a result of the Federal Reserve’s consistent rate hikes.
During such uncertainties, it could be wise to look for industry leaders with long track records of delivering dividend growth. Therefore, Microsoft Corporation (MSFT) and Johnson & Johnson (JNJ) could be ideal portfolio additions for the long term.
Microsoft Corporation (MSFT)
Microsoft is a leading tech company that develops and supports a range of software products, services, devices, and solutions. It operates through three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Its offerings range from Skype, Microsoft Teams, and Office 365 Security and Compliance for Business to Xbox hardware, video games, Xbox content, and services in gaming.
On December 14, 2022, MSFT and Viasat, Inc. (VSAT) announced a new partnership to deliver internet access to underserved communities globally. This new collaboration through the Microsoft Airband Initiative will increase internet availability for 5 million people across Africa and an additional 5 million people around the world by the end of 2025.
On November 29, 2022, the company declared a quarterly dividend of $0.68 per share, payable to shareholders on March 9, 2023. Its annual dividend of $2.72 yields 1.14% at the current price level. Its dividend payouts have increased at a 10.4% CAGR over the past three years and a 9.8% CAGR over the past five years. MSFT has a record of 18 years of consecutive dividend growth.
In the fiscal first quarter (ended September 30, 2022), MSFT’s revenue increased 10.6% year-over-year to $50.12 billion. Its gross margin increased 9.5% from the year-ago value to $34.67 billion, while its operating income grew 6.3% year-over-year to $21.52 billion. The company’s net income and EPS came in at $17.56 billion and $2.35, respectively.
Analysts expect MSFT’s EPS and revenues to increase 5.8% and 6.9% year-over-year to $2.35 and $52.79 billion in the fiscal third quarter (ending March 31, 2023). It surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of MSFT have declined marginally over the past three months to close the last trading session at $239.58.
MSFT POWR Ratings reflect its solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Stability, Sentiment, and Quality. In the Software - Business industry, it is ranked #9 of 53 stocks. Click here to see the other ratings of MSFT for Growth, Value, and Momentum.
Johnson & Johnson (JNJ)
JNJ is engaged in research and development, manufacturing, and selling healthcare products, primarily focused on human health and well-being. It operates through three segments: Consumer, Pharmaceutical, and Medical Devices. It offers its products to the general public, retail outlets and distributors, wholesalers, hospitals, and healthcare professionals.
On January 3, 2023, the company’s Board of Directors declared the first quarter’s cash dividend of $1.13 per share on its common stock, payable on March 7, 2023, to the shareholders.
JNJ’s four-year average dividend yield is 2.60%, and its current dividend translates to a 2.54% yield. Its dividends have grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. The company has a record of 60 years of consecutive dividend growth.
On December 22, 2022, JNJ acquired Abiomed, Inc. (ABMD), a leading provider of medical technology that provides circulatory support and oxygenation. This acquisition broadens JNJ’s MedTech portfolio with world-leading solutions for heart recovery and should strengthen its position in high-growth MedTech segments. Additionally, the transaction is expected to accelerate JNJ’s near and long-term sales and earnings growth.
During the fiscal third quarter (ended September 2022), JNJ’s sales to customers increased 1.9% year-over-year to $23.79 billion. The company’s net earnings grew 21.6% from the same period last year to $4.46 billion, while its net EPS came in at $1.68, representing a 22.6% increase year-over-year.
Street expects JNJ’s EPS to increase 5.1% year-over-year to $2.24 for the fiscal fourth quarter (ended December 2022). Its revenue is expected to increase by 1.5% to $23.78 billion in the next quarter ending March 31, 2023. The company has surpassed the consensus EPS estimates in each of the trailing four quarters, which is excellent.
Over the past three months, the stock has gained 9.2% to close the last trading session at $178.19.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Stability and a B for Quality. The stock is ranked #6 of 162 stocks in the Medical - Pharmaceuticals industry. Click here to see the other ratings of JNJ for Growth, Value, Momentum, and Sentiment.
MSFT shares were trading at $226.92 per share on Wednesday morning, down $12.66 (-5.28%). Year-to-date, MSFT has declined -5.38%, versus a -0.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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