Dividend stocks remain a safe harbor in this turbulent market.
2022 was a wild one for the stock market. The bear roared for most of the year. Russia’s invasion of Ukraine, a spiraling inflation crisis and an aggressive Federal Reserve interest rate-hiking campaign all roiled markets. Stocks rallied meaningfully as the year wound down on hopes of the Fed letting up on its rate hikes. However, the economy now risks a recession in 2023, and geopolitical tensions remain elevated as well. Furthermore, certain sectors, like housing, appear to be in a lot of trouble. So what’s an investor to do? Dividend stocks remain a solid choice. Defensive blue-chip holdings tend to fare well during bear markets and continue offering strong income even during recessions. With that in mind, here are 15 dividend stocks that are well positioned for whatever the economy may do in 2023 and beyond. They all yield at least 3% as well, offering superior income prospects from day one.
Shell PLC (ticker: SHEL)
Shell is one of Europe’s largest integrated oil and gas companies. It has also been a pioneer in moving away from fossil fuel reliance. The company has invested heavily in renewables. It is also expanding its network of service stations, convenience stores and new electric vehicle charging facilities. Shell believes this focus on the consumer will allow it to profitably navigate the transition to being a carbon-neutral company by 2050. For the meantime, however, oil, gas and chemicals continue to generate more than 75% of the company’s profits. That’s led to windfall results this year with the surge in energy prices. This positions Shell well for the next few years. It can generate elevated earnings off its existing fossil fuel assets while plowing its cash flow generation into EV charging and other next-generation solutions. For now, Shell stock is offering up a generous 3.5% dividend yield.
Verizon Communications Inc. (VZ)
Verizon is one of the United States’ three largest wireless carriers. This industry has historically been viewed as a safe haven, but recent events have challenged that notion. Both Verizon and AT&T Inc. (T) have disappointed investors in recent years. The industry has seen its growth taper off following the burst in demand during the pandemic. Costs remain elevated thanks to pricey 5G rollouts and expensive purchases of wireless spectrum. Combine rising costs with a mature industry, and the telecom carriers seem less attractive. The bears may be blowing things out of proportion, however, as Verizon is selling for just 7.4 times expected 2023 earnings, and analysts expect it to return to modest profit growth in 2024. Meanwhile shares pay a 6.9% dividend yield today. The company’s drawbacks are already fully reflected in the share price.
Royal Bank of Canada (RY)
Royal Bank of Canada is one of the largest banks in Canada. The company operates in a conducive market for banking firms. Canada is dominated by just six large banks, which control more than 90% of the industry’s collective assets. This limited competition leads to large profit margins and long-term stability. Royal Bank has also expanded significantly in the U.S., earning roughly a third of its revenues from outside of Canada. The bank’s wealth management and other non-retail banking operations offer diversification and boost returns. Canadian banks were out of favor in 2022 amid fears of a housing slump in Canada. That may well happen, but the Canadian government provides a substantial backstop to the mortgage market, lowering risk to Canadian banks. Put it all together, and this leading financial institution is selling for 11 times forward earnings and offers a 4.1% dividend yield.
International Business Machines Corp. (IBM)
For many years, IBM didn’t look like one of the best dividend stocks to buy. After all, newer software and cloud companies were soaring, while IBM appeared to be left behind. The tides turned in 2022. Through Dec. 13, IBM shares have posted a total return of 18.2% this year, even as the rest of the tech industry sold off sharply. What explains the change in sentiment? For one thing, after years of declining revenues, IBM has returned to growth. The firm’s bold Red Hat acquisition has given life to IBM’s cloud business. Meanwhile, the market’s newfound focus on immediate profits and cash flow — rather than future growth prospects — casts IBM in a better light. While IBM is a slow-moving company, its legacy relationships with numerous Fortune 500 companies continue to throw off gushers of cash flow. Shares yield 4.4% and have some upside if IBM can keep nibbling at the market shares of bigger cloud computing providers.
Intel Corp. (INTC)
2022 was a dismal year for the semiconductor industry in general and Intel in particular. 2021’s semiconductor shortage rapidly turned into a glut. As it pertains to Intel, demand for laptops and tablets went from record highs in 2021 to double-digit, year-over-year declines. In 2021, both Intel and Advanced Micro Devices Inc. (AMD) could sell chips as fast as they could produce them. Now, however, inventory is piling up and pricing is heading south. The semiconductor gold rush is over, but Intel still has strong economics. It’s much larger than rivals and has a massive research and development budget. It will be ready for the next upturn in the semiconductor market. Meanwhile, the Biden administration’s CHIPS Act provides a sizable stimulus package to semiconductor firms such as Intel, which are building domestic manufacturing facilities. With the recent decline in Intel’s share price, shares now yield more than 5%.
Citigroup Inc. (C)
Citigroup is one of the country’s largest banks. It has an extensive retail bank operation, and it also does investment banking and has a considerable international footprint. The bank has long been one with a challenged reputation. It performed poorly during the 2008 financial crisis and has made several questionable decisions since then. That said, its valuation today is totally disconnected from reality. Shares are going for just 6 times earnings and less than half of book value. This is even as Citigroup’s operational results have surged thanks to higher interest rates. Citigroup is now earning its highest return on equity since 2006. These factors are starting to attract attention from famed investors; Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B) bought a large stake in Citigroup stock in 2022. Given Buffett’s exemplary reputation with financial stocks, value investors should give Citigroup and its 4.5% dividend yield a close look.
Enbridge Inc. (ENB)
Enbridge is one of North America’s dominant midstream energy companies. Hailing from Canada, Enbridge’s network of pipelines snakes around virtually the whole continent. Enbridge currently moves around 30% of all the crude oil produced in North America along with handling 20% of the natural gas consumed in the U.S. The firm also has investments in energy storage, gas utilities and renewable energy. Enbridge finds itself in a strong position, ironically enough, due to environmentalists and government regulation. It’s exceptionally difficult to build new pipelines given all the obstacles to further development. This makes the existing pipes much more valuable. Enbridge has also been a shrewd operator, using leverage prudently and not overextending its balance sheet. This has allowed Enbridge to maintain steady dividend payments in recent years even as so many American rivals had to slash their payouts. ENB stock currently yields 6.6%.
3M Co. (MMM)
3M is a broadly diversified industrial conglomerate. The company is known for consumer brands such as Scotch tape, Post-It notes and Ace bandages. Its product line is far broader than that, running from dental equipment to safety helmets and automobile components. The firm has earned more than 118,000 global patents and remains a leader in innovation. Despite that, MMM stock has struggled in recent years due to economic weakness and various product liability lawsuits. This has driven 3M shares down to their lowest point since 2014. However, the company continues to increase its dividend annually and its yield is up to 4.7%. There’s more than just the dividend to support 3M’s share price. Shares are currently trading for just 12 times forward earnings. This is far below 3M’s historical median. Morningstar’s Joshua Aguilar puts fair value at $183 per share, offering roughly 44% upside from its Dec. 13 closing price of $127.29.
U.S. Bancorp (USB)
U.S. Bancorp is one of America’s largest banks, and it has a heavy focus on retail consumer banking. Historically, that has been an advantage and has given U.S. Bancorp much higher than average profitability metrics. The past decade hasn’t been especially kind to the firm’s business model, however, and shares have underperformed both the S&P 500 and peer banks in recent years. This should change going forward. For one thing, U.S. Bancorp just closed its long-planned acquisition of Union Bank, which it bought from Mitsubishi UFJ Financial Group Inc. (MUFG). This will give U.S. Bancorp a far better footprint across the West Coast. Then there’s higher interest rates, which give more leverage to consumer-focused big banks such as U.S. Bancorp. Higher interest rates, a better branch network and a low starting valuation make USB stock a winner for 2023. Shares yield 4.3%.
Canadian Natural Resources Ltd. (CNQ)
Canadian Natural Resources is one of Canada’s largest oil companies. Its roots are in Alberta, where it started developing shallow gas reserves in 1989 and then heavy crude in 1993. Over the decades, Canadian Natural has consolidated its land holdings in Alberta, acquiring more and more oil sands projects. These reserves are of high value today. This is because oil sands function more like traditional mining than oil wells. Once a property is set up, it keeps running for many years or even decades without seeing production meaningfully decline. This is incredibly useful in a world where environmental regulation has made it harder to build new oil projects. Throw in Russia’s invasion of Ukraine, and Canadian Natural’s reserves take on even more strategic significance. Shares currently trade for about 8 times forward earnings and offer a 4.5% dividend yield.
Walgreens Boots Alliance Inc. (WBA)
Walgreens Boots Alliance is one of America’s leading retail pharmacy chains. The company has been in a slump in a recent years, but it saw a renewed period of excitement in 2020. Walgreens locations became vital in providing medicines and consumer products for helping to deal with the COVID-19 pandemic. That catalyst has now passed, however, and Walgreens shares fell again in 2022. There are long-term concerns, like the threat of Amazon.com Inc. (AMZN) disrupting Walgreens’ business. Plus, profit margins on the convenience store side of the business could falter in an increasingly digital world. That said, investors seem too negative here. Walgreens is selling for just 9 times forward earnings while offering a 4.7% dividend yield. And pharmacies are unlikely to be fully displaced by the internet due to heavy regulations on online pharmaceutical sales, along with patients wanting face-to-face contact with their pharmacists.
Coca-Cola Femsa SAB de CV (KOF)
Coca-Cola Femsa is one of Coca-Cola Co.’s (KO) largest bottling firms. Coca-Cola Femsa primarily serves the Mexican market but also has operations in various South American nations such as Brazil. Notably, Femsa is the sole bottler for the Venezuelan market. This has not been worth much of anything in recent years due to Venezuela’s economic collapse. But this is about to change. The U.S. is now loosening sanctions against Venezuela and allowing it to export oil again. This should make Femsa’s Venezuelan operations profitable again, bringing 30 million consumers back into the soft drink market. Femsa could be one of the largest winners of any New York Stock Exchange-listed company with the forthcoming reopening of the Venezuelan economy. Even before that happens, KOF stock is attractive. Shares trade for around 14 times forward earnings, offer a 4.1% dividend yield and benefit from the improving economic outlook for Mexico.
Stanley Black & Decker Inc. (SWK)
Stanley Black & Decker is a leading maker of power tools, outdoor machinery and industrial fasteners. The company enjoyed unprecedented prosperity in 2020 and 2021 as people renovated their homes and improved their gardens during the pandemic. Now that the economy has reopened, however, demand has leveled off. Tools are durable goods, meaning that people who bought equipment recently likely won’t buy it again from Stanley Black & Decker for quite a while. Long story short, the company’s profits went from record highs to well below normal in a matter of months. Over the longer term, however, profits should normalize. The company typically earned an average of about $6.50 per share in the years prior to 2020. Put a modest price-earnings ratio of 17 on Stanley Black & Decker’s normal earnings, and that gets to a $110.50 stock price, a far cry from the $82.79 closing price on Dec. 13. Shares yield 3.9%.
New York Community Bancorp Inc. (NYCB)
New York Community Bancorp is a large regional bank primarily serving the New York City metro area. The bank has grown over the years by serving a niche: multifamily apartment lending. The bank is a leading source of capital for New York City’s apartment owners. These sorts of loans have modest yields but have been exceptionally low-risk over the years, thanks to the stability of rents and the housing market in New York City. As proof, New York Community Bancorp remained profitable and kept its dividend steady even in 2008, when many banks were melting down. The firm recently got final approval for its merger with Flagstar Bancorp, and the deal closed on Dec. 1. This paves the way for the combined firm’s earnings to rise dramatically in coming years. For now, shares trade at less than 8 times forward earnings and pay a 7.6% dividend yield.
Grupo Aeroportuario del Pacífico SAB de CV (PAC)
Pacific Airport Group, as the name translates, is a Mexican airport operator. It holds concessions for 12 airports in Mexico and two in Jamaica. Concessions for the Mexican airports run through 2048 and include automatic inflation adjustments. Key concessions include the large city of Guadalajara, the industrial hub of Tijuana and various tourist destinations, including Puerto Vallarta and Cabos. Mexico maintained some of the lightest COVID-19 travel restrictions in the Americas, leading to a tourist boom. Passenger traffic reached pre-pandemic levels by late 2021 and continues to soar. For November 2022, Pacifico reported traffic numbers of 22% higher than the same month in 2019. The firm also cut costs during the pandemic, meaning it is earning record-breaking profits today. Pacifico has a variable dividend policy and pays out the vast portion of its free cash flow generation as dividends in any given year. Shares currently yield 4.7%.
15 best dividend stocks to buy now:
— Shell PLC (SHEL)
— Verizon Communications Inc. (VZ)
— Royal Bank of Canada (RY)
— International Business Machines Corp. (IBM)
— Intel Corp. (INTC)
— Citigroup Inc. (C)
— Enbridge Inc. (ENB)
— 3M Co. (MMM)
— U.S. Bancorp (USB)
— Canadian Natural Resources Ltd. (CNQ)
— Walgreens Boots Alliance Inc. (WBA)
— Coca-Cola Femsa SAB de CV (KOF)
— Stanley Black & Decker Inc. (SWK)
— New York Community Bancorp Inc. (NYCB)
— Grupo Aeroportuario del Pacífico SAB de CV (PAC)
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15 Best Dividend Stocks to Buy for 2023 originally appeared on usnews.com
Update 12/14/22: This story was published at an earlier date and has been updated with new information.
