Given world events, the stock market is likely to
experience a bumpy ride over the next few weeks. So, what’s an
investor to do?
I’m going to describe four relatively high dividend
paying (4%+ yields) stocks that, despite a shaky stock market, are
unlikely to face serious financial problems that would force them to
cut their dividends.
Yes, their share prices will drop in market
downturns, but if I’m right, they will eventually recover. In the
meantime, we will be collecting substantial dividends.
Of the four stocks, I picked three because they are
profitable companies with strong balance sheets, but stock analysts
are not forecasting significant earnings or revenue growth for them
this year. In other words, fundamentally strong stocks with low
expectations. In my view, that’s a recipe for positive surprises at
report time. Sound crazy? We’ll see.
Fourth Pick First
I’ll start with the exception. My fourth pick is
Devon Energy (DVN), an oil and gas exploration and production
company. Why? Current world events are likely to drive crude oil and
natural gas prices higher. Devon operates in most of the U.S. major
oil and gas production areas such as the Permian Basin and Eagle
Ford plays.
Analysts are forecasting 60% EPS growth for Devon
this year driven by 21% revenue growth. My guess is that Devon beats
those numbers.
Devon has a unique dividend policy. It pays a fixed
$0.16 per share quarterly dividend and then adds s variable amount
reflecting 50% of each quarter’s excess cash after paying capital
expenses.
Driven by the closing of a recent acquisition that
significantly drove up Devon’s cash flow, those excess cash numbers
have increased substantially. Here are the last four quarters’ total
payouts, starting with the recently declared December quarter:
$1.00, $0.84, $0.49, and $0.34. In this case, the trend is really
our friend. Devon’s current dividend yield is 5.0%.
Low Expectation
Dividend Payers
HanesBrands (HBI): a
global producer of basic innerwear and activewear apparel. Brands
include Hanes, Champion, Maidenform and Playtex. Analysts are only
looking for low single-digit revenue and earnings growth this year,
so upside surprises are possible. Longer-term, analysts are looking
for 14% annual EPS growth. Dividend yield is 4.0%.
OneMain Holdings (OMF):
Offers subprime auto and personal loans to individuals via a network
of 1,600 branches. Once a fast earnings grower, growth has stalled
and analysts are forecasting a 10% year-over-year EPS drop for 2022.
Once a prodigious special dividend payer, OneMain has
stopped that practice, but on the other hand, recently raised its
quarterly dividend by 35% to $0.95 per share, pushing its dividend
yield up to 7.4%.
Camping World Holdings
(CWH): Camping World is one of the U.S’ largest retailers of
recreational vehicles (RVs) and related services and products. It
currently operates 185 locations in 40 states, but is rapidly
expanding and plans to be operating in 45 states within 18 months.
Despite those plans, analysts
are only forecasting 5% revenue growth and no earnings growth for
2022. Last week, Camping World raised its quarterly dividend by 25%,
bringing its yield up to 7.8%.
Those are my ideas, but do your own due diligence.
The more you know about your stocks, the better your results.
published 12/28/22
