Major macroeconomic headwinds have heightened recessionary fears in the economy. Moreover, the Fed will likely keep raising rates next year as well. Amid fears of a downturn, fundamentally strong stocks PepsiCo (PEP), Humana (HUM), and Weis Markets (WMK) might be ideal investments based on their stable and consistent dividend history. Read on.
Rising interest rates, red-hot inflation, the war in Ukraine, and the environmental crisis have pushed the economy over the edge this year. Moreover, with China’s lockdown exacerbating supply chain and pricing pressures, the U.S. economy appears to be teetering toward recession.
Although Jerome Powell has recently signaled a slowdown in rate hikes, Beth Ann Bovino, the chief U.S. economist at S&P Global Ratings, said she expects another Fed rate increase this year, predicting the federal funds rate to reach 5% to 5.25% by the second quarter of 2023.
Bank of America has predicted recessionary pressures to hit markets in the first quarter of next year and expects growth to fall by 0.4%. Savita Subramanian, the bank’s head of U.S. equity strategy, said, “We think the market could drop as low as 3,000 based on a panoply of indicators, given a host of risks we face as payback continues and a recession unfolds.”
Amid the heightened recessionary fears, fundamentally strong stocks PepsiCo, Inc. (PEP), Humana Inc. (HUM), and Weis Markets, Inc. (WMK) might be ideal investments. Moreover, these companies have a history of stable and consistent dividend payments.
PepsiCo, Inc. (PEP)
PEP is a global beverage and convenience foods company. The company operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, and South Asia; and Asia Pacific, Australia and New Zealand and China Region.
On September 14, 2022, PEP and Archer-Daniels-Midland Company (ADM) announced a groundbreaking 7.5-year strategic commercial agreement to collaborate closely on projects that aim to significantly expand regenerative agriculture across their shared North American supply chains.
The companies’ capabilities span the food and agriculture value chains, creating a unique, large-scale platform to support farmers’ transition to regenerative agriculture while building their resilience to climate change.
On November 17, PEP declared a quarterly dividend of $1.15 per share payable on January 6, 2023, which reflects a 7% increase compared to a year-earlier period.
PEP’s annual dividend of $4.60 translates to a 2.49% yield. Over the last five years, PEP’s dividend payouts have grown at a 7.4% CAGR. PEP has paid consecutive quarterly cash dividends since 1965, and this year marked the company’s 50th consecutive annual dividend increase.
PEP’s net revenue for the third quarter ended September 3, 2022, increased 8.8% year-over-year to $21.97 billion. Its non-GAAP operating profit increased 11% year-over-year to $3.59 billion. The company’s non-GAAP net income attributable to PEP increased 10.1% year-over-year to $2.73 billion, while its adjusted EPS increased 10% from the prior-year period to $1.97.
Street expects PEP’s EPS for the current fiscal year ending December 2022 to increase 8.4% year-over-year to $6.78. Its revenue is likely to grow 6.8% year-over-year to $84.87 billion. The company has surpassed its consensus EPS and revenue estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 16.1% to close the last trading session at $185.51. PEP has a 24-month beta of 0.52.
PEP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to 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 an A grade for Quality and a B for Growth, Stability, and Sentiment. It is ranked #8 out of 34 stocks in the A-rated Beverages industry.
Click here to see the other PEP ratings for Value and Momentum.
Humana Inc. (HUM)
HUM is a health and well-being company that operates through three segments: Retail; Group and Specialty; and Healthcare Services. The company provides medical and supplemental benefit plans to individuals.
On November 22, HUM announced the completion of its public offering of $1.25 billion in aggregate principal amount of senior notes. These senior notes are comprised of $500 million of the company’s 5.750% senior notes due 2028 at 99.705% of the principal amount and $750 million of the company’s 5.875% senior notes due 2033 at 99.508% of the principal amount. The company expects net proceeds of approximately $1.23 billion.
On October 26, HUM and Monogram Health, a kidney-care provider, announced a new value-based care agreement for most Humana Medicare Advantage HMO and PPO plan members in four states for people with chronic kidney disease.
Carl Daley, HUM Senior Vice President of Retail Strategy and Operations, said, “Building on our existing relationship with Monogram is an important way we can provide the highest levels of support and access to care for our members.”
On October 27, HUM announced a dividend of $0.7875 per share, payable on January 27, 2023. The company’s annual dividend of $3.15 per share yields 0.59% at the current price. HUM’s dividends grew at 12.5% CAGR over the past three years and 15.5% CAGR over the last five years. The company has had five consecutive years of dividend growth.
HUM’s adjusted revenue increased 9% year-over-year to $22.75 billion in the fiscal third quarter of 2022. Its adjusted operating cash flows came in at $2.68 billion, and its adjusted EPS rose 42.4% from the prior-year period to $6.88.
Analysts expect HUM’s EPS to increase 21.3% year-over-year to $25.04 in the current fiscal year ending December 2022. Likewise, its revenue estimate of $92.81 billion for the same year indicates an improvement of 11.7% from the prior year. HUM has surpassed its consensus EPS estimates in each of the trailing four quarters.
The stock has gained 31% over the past year to close its last trading session at $549.90. HUM has a 24-month beta of 0.57.
It’s no surprise that HUM has an overall A rating, which translates to Strong Buy in our POWR Ratings system.
HUM has a B grade for Growth, Value, and Quality. It is ranked #4 out of the 11 stocks in the A-rated Medical – Health Insurance industry.
In addition to the POWR Rating grades we’ve stated above, one can see HUM ratings for Momentum, Sentiment, and Stability here.
Weis Markets, Inc. (WMK)
WMK is a food retailer that engages in the retail sale of food through a chain of supermarkets. The company operates primarily under the Weis Markets name and Weis, Weis Great Meals Start Here, Weis Gas-n-Go, and Weis Nutri-Facts brands.
On October 27, WMK declared its quarterly dividend of $0.34 per share, indicating a 6.3% increase in the quarterly cash dividend, which was payable on November 21, 2022.
The company pays $1.36 annually as a dividend, representing a yield of 1.56% at the current prices. Its dividend payouts have grown at a 1.6% CAGR over the past three years. The company has been raising its dividends for the past two years and has a record of 33 consecutive years of dividend payments.
WMK’s net sales increased 8.5% year-over-year to $1.15 billion in the fiscal third quarter ended September 24, 2022. The company’s net income rose marginally from its prior-year quarter to $28.66 million. Also, its earnings per share came in at $1.07, compared to $1.06 in the previous-year quarter.
The stock has gained 38.5% over the past year, closing the last trading session at $87.21. It has a 24-month beta of 0.38.
WMK’s fundamental strength and strong outlook are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
WMK has a grade of A for Stability and Quality. It is ranked #13 of 39 stocks in the A-rated Grocery/Big Box Retailers industry.
Click here to see additional POWR Ratings for Growth, Value, Sentiment, and Momentum for WMK.
PEP shares fell $1.12 (-0.60%) in premarket trading Thursday. Year-to-date, PEP has gained 8.29%, versus a -13.03% rise in the benchmark S&P 500 index during the same period.
Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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