Since last year, the stock market has faced many macroeconomic challenges. The Federal Reserve has raised the interest rates several times since last year to bring down inflation which had climbed to a 40-year high. Last week, The Fed raised the short-term interest rates by a quarter of a percentage point, bringing the benchmark rate to a new range of 4.5% and 4.75%, the highest level since October 2007.
A slowing inflation essentially led to a decline in interest rate hikes. The December consumer price index (CPI) showed a 6.5% year-over-year rise and a 0.1% decline sequentially, respectively, marking the sixth consecutive month of slowing annual inflation.
Fed Chair Jerome Powell sounded optimistic about inflation, saying, “We can now say for the first time that the disinflationary process has started.”
“And while recent developments are encouraging, we will need substantially more evidence to be confident that inflation is on a sustained downward path,” he added. The Fed’s statement had indications that the FOMC still sees the need for “ongoing increases in the target range.”
This is expected to fuel a recession this year. Bank of America CEO Brian Moynihan said that the bank was preparing for a potential recession this year. In a call with investors, he said, “Our baseline scenario contemplates a mild recession. But we also add to that a downside scenario, and what this results in is 95% of our reserve methodology is weighted toward a recessionary environment in 2023.”
Amid this uncertain environment, investors looking to generate passive income could look to buy dividend stocks. Dividend stocks could help cushion one’s portfolio against market volatility by generating a stable source of income. Investors’ interest in dividend stocks is evident from the SPDR S&P Dividend ETF’s (SDY) 6.6% returns over the past three months.
To that end, it could be wise to invest in fundamentally strong dividend stocks AbbVie Inc. (ABBV), Valero Energy Corporation (VLO), and KT Corporation (KT).
AbbVie Inc. (ABBV)
Biopharmaceutical company ABBV is engaged in developing, manufacturing, commercializing, and selling medicines and therapies. The company is present in various therapeutic categories like immunology, oncology, aesthetics, neuroscience, and women's health products.
On January 10, 2023, ABBV and Anima Biotech (Anima) announced a collaboration to discover and develop mRNA biology modulators for three targets across Oncology and Immunology. “This collaboration will give AbbVie access to Anima’s leading technology platform and deep expertise in mRNA biology and will help further strengthen AbbVie’s world-class capabilities in discovering and developing drugs to make a difference in patient’s lives,” said Jonathon Sedgwick, Ph.D., Vice President and global head of discovery research, ABBV.
On October 22, 2022, ABBV acquired DJS Antibodies Ltd., a privately held UK-based biotechnology company involved in discovering and developing antibody medicines that target difficult-to-drug disease-causing proteins, such as G protein-coupled receptors (GPCRs).
“This acquisition will deliver new capabilities to enhance our current antibody research activities, an opportunity to strengthen our immunology portfolio, and provide a strong foothold for expanded research efforts in the dynamic bioscience hub in Oxford, UK,” said Jonathon Sedgwick, Ph.D., ABBV’s VP and Global head of discovery research.
ABBV’s annual dividend of $5.92 yields 4.08% on the current share price. The company’s dividend payouts have increased at a 9.2% CAGR over the past three years and a 16.9% CAGR over the past five years. It has increased its dividend for 51 consecutive years.
In terms of the trailing-12-month gross profit margin, ABBV’s 69.83% is 26.4% higher than the 55.26% industry average. Likewise, its 51.54% trailing-12-month EBITDA margin is significantly higher than the industry average of 3.91%. Furthermore, the stock’s 0.40x trailing-12-month asset turnover ratio is 18.3% higher than the industry average of 0.34x.
ABBV’s net revenues increased 3.3% year-over-year to $14.81 billion in the third quarter ended September 30, 2022. The company’s operating income increased 6.9% year-over-year to $4.60 billion. Its adjusted after-tax earnings increased 29.1% year-over-year to $6.53 billion. Also, its adjusted EPS came in at $3.66, representing an increase of 29.3% year-over-year.
For the quarter ended December 31, 2022, ABBV’s EPS and revenue are expected to increase 8.1% and 2.8% year-over-year to $3.58 and $15.30 billion, respectively. It has surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 3.1% to close the last trading session at $145.02.
ABBV’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 172 stocks within the Medical – Pharmaceuticals industry. It has an A grade for Quality and a B for Growth and Value. Click here to see the other ratings of ABBV for Momentum, Stability, and Sentiment.
Valero Energy Corporation (VLO)
VLO manufactures, markets, and sells transportation fuels and petrochemical products. The company operates through its three broad segments – Refining, Renewable Diesel, and Ethanol.
On January 31, 2023, VLO and Darling Ingredients Inc. (DAR) announced that the company had made the final investment decision on the sustainable aviation fuel (SAF) project at the DGD Port Arthur plant, owned and operated by Diamond Green Diesel Holdings LLC, a 50/50 joint venture between VLO and Darling.
After completion of the project in 2025, the plant will be able to upgrade approximately 50% of its 470 million gallons annual production capacity to SAF. Post-completion, DGD will be one of the largest SAF manufacturers in the world. VLO’s Chairman and CEO Joe Gorder said, “This project is a natural extension of our liquid fuels manufacturing expertise and demonstrates our growth strategy through innovation in renewables.”
The company is expected to pay a quarterly dividend of $1.02 per share on March 16, 2023. VLO’s annual dividend of $4.08 yields 3.10% on the current share price. Its dividend payouts have increased at a 2.9% CAGR over the past three years and a 7% CAGR over the five years. VLO’s four-year average dividend yield is 5.03%.
In terms of the trailing-12-month Return on Total Capital, VLO’s 28.03% is 228.6% higher than the 8.53% industry average. Likewise, its 57.15% trailing-12-month Return on Common Equity is 169.7% higher than the industry average of 21.19%. Furthermore, the stock’s 2.90x trailing-12-month asset turnover ratio is 351.3% higher than the industry average of 0.64x.
For the fourth quarter ended December 31, 2022, VLO’s revenues increased 16.3% year-over-year to $41.75 billion. Its operating income rose 169.5% year-over-year to $4.30 billion. Its adjusted net income attributable to VLO increased 226.6% year-over-year to $3.23 billion. In addition, its adjusted EPS came in at $8.45, representing an increase of 250.6% year-over-year.
For the quarter ending March 31, 2023, VLO’s EPS and revenue are expected to increase 184% and 2.1% year-over-year to $6.56 and $39.34 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 47.7% to close the last trading session at $128.09.
It’s no surprise that VLO has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. Within the B-rated Energy – Oil & Gas industry, it is ranked #4 out of 93 stocks.
It has an A grade for Momentum and a B for Growth, Value, Sentiment, and Quality. To see VLO’s rating for Stability, click here.
KT Corporation (KT)
Headquartered in Seongnam, South Korea, KT provides integrated telecommunications and platform services in Korea and internationally. The company operates through the Customer and Marketing businesses. Its services include wire and wireless phones, internet, and other communication.
On September 7, 2022, KT announced that it had decided to cooperate with Hyundai Motor Group to cooperate with each other in promoting the advancement of vehicle technology in the field of ‘connectivity’. KT and Hyundai decided to acquire shares of each company mutually through a treasury stock exchange to strengthen their long-term partnership.
KT pays a $0.75 per share dividend annually, which translates to a 5.59% yield on the current share price. Its four-year dividend yield is 4.60%.
In terms of the trailing-12-month net income margin, KT’s 5.55% is 40.9% higher than the 3.94% industry average. Likewise, its 19.70% trailing-12-month EBITDA margin is 2.3% higher than the industry average of 19.26%. Furthermore, the stock’s 13.50% trailing-12-month Capex/Sales is 238.5% higher than the industry average of 3.99%.
KT’s operating revenue for the third quarter of fiscal 2022 increased 4.2% year-over-year to ₩6.48 trillion ($5.15 billion). Its operating income rose 18.4% from the prior-year period to ₩452.90 billion ($360.41 million). The company’s EBITDA increased 6.4% year-over-year to ₩1.36 trillion ($1.08 billion).
Analysts expect KT’s revenue for the quarter ending March 2023 is expected to increase 3.5% year-over-year to $3.72 billion. Its EPS for fiscal 2023 is expected to increase 3.9% year-over-year to $2.08. Over the past three months, the stock has gained 4% to close the last trading session at $13.51.
KT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked #5 out of 47 stocks in the A-rated Telecom – Foreign industry. It has an A grade for Value and Stability. To see the other ratings of KT for Growth, Momentum, Sentiment, and Quality, click here.
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ABBV shares were trading at $144.26 per share on Tuesday morning, down $0.76 (-0.52%). Year-to-date, ABBV has declined -9.89%, versus a 6.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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