The chances of the economy heading into a recession are rising due to the high benchmark interest rate and an expected credit crunch due to tighter lending standards.
In an uncertain macroeconomic environment, dividend stocks could help stabilize one’s portfolio by providing stable dividend payments and capital appreciation in the long term. To that end, it could be wise to add fundamentally strong dividend-paying stocks 3M Company (MMM), Dow Inc. (DOW), and Walgreens Boots Alliance, Inc. (WBA) to one’s watchlist.
Before diving deeper into the fundamentals of these stocks, let’s discuss why investing in dividend stocks could help tide over macroeconomic uncertainty.
Although inflation declined for the tenth consecutive month in April, it remains above the Fed’s 2% target. Moreover, the jobs market remains strong as nonfarm payrolls rose higher-than-expected by 253,000.
The Personal Consumption Expenditure (PCE) is closely followed by the Fed to gauge inflation. The Core PCE rose 0.4% in April and 4.7% year-over-year, a tad higher than expected. Markets have consequently increased the odds of the Fed raising interest rates at the next meeting. This could continue to keep the economy under pressure.
In what seems like a persistent fear of an imminent recession, risk-averse investors face the dilemma of where to invest their cash. In times like these, the closest thing to a safety net for an investor is a consistent stream of income in the form of dividend payments. This can offer protection against any economic headwinds or downturns.
Considering these factors, adding the featured stocks to one’s watchlist could be wise. Let’s take a closer look at their fundamentals.
3M Company (MMM)
MMM provides diversified technology services in the United States and internationally. The company operates through four segments: Safety and Industrial; Transportation and Electronics; Health Care; and Consumer.
On May 19, 2023, MMM is expanding its ongoing commitment to materials science-based climate tech solutions through a joint development agreement with Svante Technologies, Inc. to develop material that can trap carbon dioxide (CO2) found in the atmosphere and permanently remove it.
President of MMM’s Personal Safety Division, Ray Eby, said, “Our deep expertise in filtration technology, extensive global R&D community and our unwavering commitment to create world-changing solutions give us the confidence to scale these carbon-adsorbing solutions with the necessary speed to combat climate change.”
Over the last three years, MMM’s dividend payouts have grown at a 0.9% CAGR. Its four-year average dividend yield is 3.88%, and its trailing-12-month annual dividend of $6 per share translates to a 6.43% yield. It is expected to pay a quarterly dividend of $1.50 per share on June 12, 2023.
In terms of forward non-GAAP P/E, MMM’s 10.81x is 31.2% lower than the 15.71x industry average. Its 8.23x forward EV/EBITDA is 19% lower than the 10.16x industry average. Likewise, its 10.67x forward EV/EBIT is 24.8% lower than the 14.19x industry average.
MMM’s net sales for the fiscal first quarter ending March 31, 2023, came in at $8.03 billion. Its net cash provided by operating activities increased 26.1% year-over-year to $1.28 billion. Its total assets came in at $46.89 billion, compared to $46.46 billion for the fiscal year ended December 31, 2022. In addition, its EPS attributable to MMM common shareholders came in at $1.76.
Analysts expect MMM’s EPS for the quarter ending December 31, 2023, to increase 5.7% year-over-year to $2.41. Its revenue for fiscal 2024 is expected to increase by 3.2% year-over-year to $33.07 billion. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.
Over the past month, the stock has fallen 12.2% to close the last trading session at $93.44.
USLM’s positive outlook is reflected in its POWR Ratings systems. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the A-rated Industrial - Machinery industry, it is ranked #43 out of 78 stocks. It has an A grade for Quality. To see the additional POWR Ratings of MMM for Growth, Value, Momentum, Stability, and Sentiment, click here.
Dow Inc. (DOW)
DOW provides various materials science solutions for packaging, infrastructure, mobility, and consumer applications worldwide. It operates through Packaging & Specialty Plastics, Industrial Intermediates & Infrastructure, and Performance Materials & Coatings segments.
DOW’s four-year average dividend yield is 4.93%, and its trailing-12-month annual dividend of $2.80 per share translates to a 5.74% yield. It is expected to pay a quarterly dividend of $0.70 per share on June 9, 2023.
In terms of forward EV/Sales, DOW’s 0.98x is 31.2% lower than the 1.42x industry average. Likewise, its 0.71x forward Price/Sales is 32.9% lower than the 1.05x industry average.
DOW’s net sales for the first quarter that ended March 31, 2023, declined 22.4% year-over-year to $11.85 billion. Its non-GAAP net income came in at $415 million, compared to a non-GAAP net income of $1.74 billion in the prior-year quarter. The company’s non-GAAP EPS came in at $0.58, compared to a non-GAAP EPS of $2.34 in the year-ago period.
Analysts expect DOW’s EPS and revenue for the quarter ending December 31, 2023, to increase 96.2% and 3.1% year-over-year to $0.90 and $12.22 billion, respectively. The stock has fallen 3.2% year-to-date to close the last trading session at $48.90.
DOW has a B grade for Value in our proprietary rating system. It is ranked #30 out of 84 stocks in the Chemicals industry. Click here to see the other ratings of DOW for Growth, Momentum, Stability, Sentiment, and Quality.
Walgreens Boots Alliance, Inc. (WBA)
WBA operates as a pharmacy-led health and beauty retail company. It operates through two segments, the United States and International.
Over the last three years, WBA’s dividend payouts have grown at a 1.6% CAGR. Its four-year average dividend yield is 4.25%, and its trailing-12-month annual dividend of $1.92 per share translates to a 6.32% yield. It is expected to pay a quarterly dividend of $0.48 per share on June 12, 2023.
On April 13, 2023, WBA and Prothena announced a collaboration to accelerate patient identification and recruitment for Prothena’s ongoing Alzheimer’s disease clinical trial.
WBA chief clinical trials officer, Ramita Tandon, commented, “Through Walgreens trusted community pharmacy presence and daily interactions with millions of patients across America, we believe we can have a meaningful impact in helping Prothena with their clinical trial recruitment efforts.”
“Our aim is to help build a more representative patient population for Alzheimer’s research, particularly among underserved and diverse communities, to create a better understanding of this disease,” she added.
In terms of forward non-GAAP P/E, WBA’s 6.76x is 62.1% lower than the 17.81x industry average. Its 0.52x forward EV/Sales is 67.7% lower than the 1.61x industry average. Likewise, its 0.19x forward Price/Sales is 82.6% lower than the 1.10x industry average.
WBA’s sales increased 3.3% year-over-year to $34.86 billion for the fiscal second quarter that ended February 28, 2023. The company’s total assets came in at $100.48 billion, compared to $90.12 billion for the fiscal year ended August 31, 2022.
Its adjusted net earnings attributable to WBA came in at $1 billion, while its adjusted net EPS came in at $1.16.
WBA’s EPS and revenue for the quarter ended May 31, 2023, are expected to increase 14.2% and 4.5% year-over-year to $1.10 and $34.05 billion, respectively. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters.
Over the past month, the stock has fallen 13.8% to close the last trading session at $30.37.
The stock is ranked #3 out of 4 stocks in the B-rated Medical - Drug Stores industry. It has a B grade for Growth. Click here to see the additional ratings of WBA for Value, Momentum, Stability, Sentiment, and Quality.
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MMM shares were trading at $94.30 per share on Thursday afternoon, up $0.99 (+1.06%). Year-to-date, MMM has declined -19.11%, versus a 10.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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