The stock market’s rally this month could soon retreat with the Federal Reserve’s 75 basis-point interest rate hike today for the second straight month. The central bank is expected to keep raising rates to avoid a deep recession.
Moreover, the Atlanta Federal Reserve Bank recently estimated a 1.6% decline in GDP in the second quarter. Negative GDP growth in the second consecutive quarter is expected to rattle consumer confidence and aggravate the odds of the economy tipping into a recession.
Given the gloomy economic outlook, investors should opt for fundamentally sound stocks with high dividend yields as they help generate a steady income stream.
“We're finding it makes more sense to focus on more stable companies with growing cash dividends that offer protection against volatility and also against inflation,” said John Mowrey, Chief Investment Officer of NFJ Investment Group. Investors’ interest in dividend stocks is evident from the iShares Core High Dividend ETF’s (HDV) 2.4% gains over the past nine months.
Amid the risk-off environment, investing in quality dividend-paying stocks Texas Instruments Incorporated (TXN), Visa Inc. (V), and Gilead Sciences, Inc. (GILD) could be wise now. These stocks are rated Strong Buy or Buy in our proprietary rating system.
Texas Instruments Incorporated (TXN)
TXN designs, manufactures, markets, and sells semiconductors worldwide to electronics designers and manufacturers. The company operates in two segments: Analog; and Embedded Processing. It provides power products, DC/DC switching regulators, AC/DC and isolated controllers and converters, linear regulators, and lighting products.
Additionally, TXN offers microcontrollers, digital signal processors, and application processors. The company markets and sells its semiconductor products through direct sales, distributors, and its website.
On July 21, TXN’s Board of Directors declared a quarterly cash dividend of $1.15 per share, payable on August 16. Its dividend pay-outs have grown at a CAGR of 15.1% over the past three years and 18.9% over the past five years.
TXN’s current dividend translates to a 2.82% yield, while its four-year average dividend yield is 2.49%. Also, the company has raised dividends for 16 consecutive years.
On June 21, TXN expanded its connectivity portfolio with a new range of wireless microcontrollers (MCU). The SimpleLink™ Bluetooth LE CC2340 family is built on the foundation of TI’s wireless connectivity expertise and features best-in-class standby current and radio frequency (RF) performance. The expansion of the company’s connectivity portfolio might boost its revenue streams.
TXN's revenue increased 13.8% year-over-year to $5.21 billion in the fiscal 2022 second quarter ended June 30, 2022. Its operating profit rose 23.1% from the year-ago value to $2.72 billion. In addition, the company’s net income and earnings per common share came in at $2.29 billion and $2.45, registering a rise of 18.6% and 19.5% year-over-year, respectively.
TXN's trailing-12-month EBIT margin of 51.27% is 541.1% higher than the industry average of 8.00%. Its trailing-12-month net income margin of 43.34% is 825% higher than the industry average of 4.69%.
The consensus revenue estimate of $4.97 billion for the fiscal 2022 third quarter, ending September 2022, represents an increase of 7% from the prior-year period. The current quarter's $2.27 consensus EPS estimate indicates a 6.9% year-over-year rise. Furthermore, it has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2.9% over the past month to close the last trading session at $160.84.
TXN’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TXN has a grade of A for Quality. Within the B-rated Semiconductor & Wireless Chip industry, it is ranked #30 of 94 stocks.
Click here to see additional POWR Ratings (Stability, Value, Growth, Sentiment, and Momentum) for TXN.
Visa Inc. (V)
V is a leading payments technology company that facilitates digital payments among consumers, merchants, financial institutions, strategic partners, businesses, and government entities. Additionally, it provides card products, platforms, and value-added services. The company offers products and services under the Visa, Visa Electron, Interlink, and VPAY brands.
In May, V partnered with Fundbox, an embedded working capital platform for small businesses, to strengthen the latter’s platform with new digital payment capabilities. Under this collaboration, Fundbox Flex Visa Debit Card will be launched, issued by Pathward, N.A.
In addition, the companies will work together in the coming months to introduce a range of new payment products, including a Buy Now, Pay Later (BNPL) solution, and a push-to-card transfer option for instant fund disbursement through Visa Direct. This partnership is expected to extend the company's customer reach and boost its revenues.
V's net revenues increased 19% year-over-year to $7.30 billion in the fiscal third quarter ended June 30, 2022. Its operating income grew 2.1% from the year-ago value to $4.15 billion. The company’s non-GAAP net income and non-GAAP earnings per share came in at $4.20 billion and $1.98, up 29% and 33% year-over-year, respectively.
V pays $1.50 as dividends annually, yielding 0.70% on the current price. The company’s dividends have increased at a CAGR of 14.6% over the past three years and 17.9% over the past five years. The company’s dividend grew for 13 consecutive years.
V's trailing-12-month gross profit margin of 97.19% is 91.8% higher than the industry average of 50.67%. Its trailing-12-month net income margin of 51.10% is 990.7% higher than the industry average of 4.69%.
The $7.60 billion consensus revenue estimate for its fiscal 2022 fourth quarter (ending September 2022) represents a 15.9% improvement from the same period in 2021. Analysts expect the company’s EPS for the current quarter to come in at $1.88, representing a 15.8% increase year-over-year.
The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters. V's shares have gained 4.4% over the past month to close the last trading session at $212.49.
V's POWR Ratings reflect this strong outlook. The stock has an overall B grade, translating to a Buy in our proprietary rating system.
V has a B grade for Quality, Sentiment, Growth, and Stability. Within the Consumer Financial Services industry, it is ranked #6 of 48 stocks. Click here to see V's additional POWR Ratings (Value and Momentum).
Gilead Sciences, Inc. (GILD)
GILD is a biopharmaceutical company that discovers, develops, and commercializes medicines in various areas in the United States, Europe, and internationally. The company provides Genvoya, Odefsey, Stribild, and Atripla products to treat HIV/AIDS, Veklury for treating coronavirus disease 2019, and Ranexa for treating chronic angina.
On July 19, GILD and the European Commission signed a joint procurement agreement (JPA). The new deal will ensure continued rapid and equitable access to Veklury® (remdesivir) for COVID-19 patients in European Union (EU) and European Economic Area (EEA) countries. The agreement is expected to boost the company’s growth and profitability.
In the fiscal 2022 first quarter ended March 31, 2022, GILD's total revenues grew 2.6% year-over-year to $6.59 billion. The company's non-GAAP income from operations rose 2.9% year-over-year to $3.52 billion. In addition, non-GAAP net income attributable to GILD and non-GAAP EPS came in at $2.68 billion and $2.12, registering increases of 3.8% and 3.9% from the prior-year period, respectively.
GILD pays $2.92 as dividends annually, yielding 4.82% on the current price. Its 4-year average dividend yield translates to 3.89%. The company’s dividends have increased at a CAGR of 6.3% over the past three years and 7.8% over the past five years. Furthermore, GLID increased dividends for six consecutive years.
Analysts expect GILD's EPS for the fiscal 2022 fourth quarter (ending December 2022) to come in at $1.41, representing a 104.9% rise year-over-year. In addition, the company has topped the consensus EPS estimates in three of the trailing four quarters and consensus revenue estimates in each of the trailing quarters.
The stock has declined 3.7% over the past month to close the last trading session at $60.62.
GILD's strong fundamentals are reflected in its POWR Ratings. It has an overall A grade, equating to a Strong Buy in our proprietary rating system.
GILD has a grade of A for Value and B for Quality and Sentiment. Within the Biotech industry, it is ranked #6 of 401 stocks. Click here to see additional POWR Ratings (Growth, Stability, and Momentum) for GILD.
TXN shares were trading at $171.54 per share on Wednesday afternoon, up $10.70 (+6.65%). Year-to-date, TXN has declined -7.76%, versus a -14.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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