Yesterday’s retail sales report showed that consumers pulled back on spending last month, raising fears of a recession. Moreover, the Fed signaled to keep raising rates more through the following year. Given an uncertain market backdrop, investors should buy fundamentally sound and dividend-paying stocks Johnson (JNJ), Coca-Cola (KO), and Cardinal Health (CAH), which could keep gaining and generate significant long-term returns. Read on….
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With inflation cooling considerably in the last two months, the Federal Reserve slightly eased its monetary policy tightening by raising its benchmark interest rate by 50 basis points this week.
“Inflation data received so far for October and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to have confidence that inflation is on a sustained downward path,” said the Fed Chair, Jerome Powell.
The Fed officials indicated plans to keep raising rates through next year, with no reductions until 2024, and expect the “terminal rate” at 5.1%. Furthermore, the weaker-than-expected retail sales data suggests that inflation is taking a toll on consumers. Retail sales dropped 0.6% in November, worse than the Dow Jones estimate of a 0.3% decline.
The disappointing retail sales report and the Fed’s indication of extending rate hikes sparked recessionary fears. Wall Street tumbled yesterday, with the Dow Jones closing out its worst day in three months. The Dow Jones declined 2.3%, while the S&P 500 and Nasdaq Composite fell 2.5% and 4.5%, respectively.
Amid the ongoing market uncertainties, investing in fundamentally strong and dividend-paying stocks Johnson & Johnson (JNJ), The Coca-Cola Company (KO), and Cardinal Health, Inc. (CAH) could be wise for investors looking to generate massive long-term returns.
Johnson & Johnson (JNJ)
JNJ, the world’s largest and most diverse healthcare conglomerate, develops, manufactures, and sells various healthcare goods. Its business operates through three segments, Consumer Health Products; Pharmaceutical Products; and MedTech. Its core focus is items relating to human health and well-being.
On November 1, JNJ and Abiomed Inc. (ABMD), a world leader in breakthrough heart, lung, and kidney support technologies, announced that they have entered into a definitive agreement under which JNJ will acquire through a tender offer all outstanding shares of Abiomed, for an upfront payment of $380.00 per share in cash.
ABMD’s skilled workforce, strong ties with clinicians, unique cardiovascular portfolio, and extensive pipeline will complement JNJ’s MedTech portfolio. It will also enable JNJ to implement its strategic priorities, and vision for the new JNJ focused on Pharmaceutical and MedTech.
For the fiscal 2022 third quarter ended September 30, 2022, JNJ’s sales in the United States grew 4.1% year-over-year to $12.45 billion, while its overall reported sales increased 1.9% year-over-year to $23.79 billion, with adjusted operational growth of 8.2%. Its net earnings rose 21.6% year-over-year to $4.46 billion, while its EPS increased 22.6% from the year-ago value to $1.68.
JNJ paid a quarterly dividend of $1.13 per share on December 6, 2022. It pays a $4.52 per share dividend annually, which translates to a 2.51% yield on the current price. Its four-year average dividend yield is 2.60%. JNJ’s dividend payout has grown at a 5.9% CAGR over the past three years and a 6% CAGR over the past five years. The company has raised its dividend for 60 consecutive years.
For the fiscal year ending December 2022, analysts expect JNJ’s revenue to increase 1.4% year-over-year to $95.04 billion. The company’s EPS for the current year is expected to increase by 2.5% year-over-year to $10.05. JNJ has surpassed the consensus EPS estimates in each of the four trailing quarters, which is impressive.
In addition, analysts expect the company’s revenue and EPS for the next fiscal year to grow 2.6% and 3.2% year-over-year to $97.54 billion and $10.37, respectively. Over the past month, JNJ has gained 3% and 4.4% over the past six months to close the last trading session at $177.49.
JNJ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Stability and a B for Value and Quality. Within the Medical-Pharmaceuticals industry, it is ranked #7 of 160 stocks.
Beyond what we stated above, we also have JNJ’s ratings for Growth, Sentiment, and Momentum. Get all JNJ ratings here.
The Coca-Cola Company (KO)
KO is a famous beverage company that manufactures, markets, and sells various nonalcoholic beverages worldwide. The company offers sparkling soft drinks, flavored and enhanced water, sports drinks, juice, dairy, plant-based beverages, and energy drinks. It operates through a network of independent bottling partners, distributors, wholesalers, and retailers.
On September 29, KO and Molson Coors Beverage Company (TAP) entered an exclusive agreement to develop and commercialize Topo Chico Spirited, a line of spirit-based, ready-to-drink cocktails inspired by the bright and refreshing taste of tequila and vodka-based beverages. It will be launched in more than 20 markets across the country in 2023 and might boost the company’s revenue stream.
For the fiscal 2022 third quarter ended September 30, 2022, KO’s net operating revenues increased 10.2% year-over-year to $11.05 billion. The company’s gross profit grew 7.1% year-over-year to $6.50 billion. Its operating income came in at $3.09 billion, up 6.6% year-over-year.
Furthermore, the net income attributable to shareholders of KO was $2.83 billion, up 14.3% year-over-year. Its non-GAAP net income per share grew 6.2% from the year-ago value to $0.69.
On December 15, KO paid its shareholders a regular quarterly dividend of $0.44 per common share. The company pays $1.76 per share annually, which translates to a 2.75% yield at the current price. Its four-year average dividend yield is 3.07%.
KO has a record of 60 years of consecutive dividend growth. The company’s dividend payouts have grown at a CAGR of 3.2% over the past three years and a CAGR of 3.5% over the past five years.
Analysts expect KO’s EPS to increase 7.4% year-over-year to $2.49 for the fiscal year ending December 2022. Likewise, the revenue estimate of $42.70 billion indicates a 10.5% growth from the previous year. Also, the company has surpassed the consensus EPS and revenue estimates in all four trailing quarters.
The stock has gained 3.2% over the past month and 8.7% over the past year to close its last trading session at $63.11.
KO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
KO has a grade of A for Sentiment and B for Stability and Quality. Within the A–rated Beverages industry, it is ranked #16 out of 33 stocks.
Beyond what we’ve stated above, we have also given KO grades for Value, Momentum, and Growth. Get all KO ratings here.
Cardinal Health, Inc. (CAH)
CAH provides various healthcare services and products in the United States, Canada, Europe, and Asia. The company operates through two segments: Pharmaceutical and Medical. It offers customized solutions for hospitals, healthcare systems, pharmacies, clinical laboratories, and at-home patients.
Last month, CAH launched Velocare™, a supply chain network and last-mile fulfillment solution that will reach patients in one to two hours with critical products and services required for hospital-level care at home. Through a collaboration with Medically Home, Cardinal Health at-Home Solutions supports Medically Home health system customers with Velocare™ to enable scaled, high-acuity care in the home.
On September 15, CAH and PayrHealth announced a collaboration to help specialty physician practices simplify payor contracting and maximize financial performance. “We are very excited to partner with PayrHealth to bring meaningful efficiencies and cost savings to practices, so they can focus on patient care,” said Amy Valley, vice president of Clinical Strategy & Technology Solutions at Cardinal Health.
In the fiscal 2023 first quarter ended September 30, 2022, CAH’s revenue increased 12.8% year-over-year to $48.60 billion. Its revenue from the Pharmaceutical segment rose 15.1% from the year-ago value to $46.83 billion, while its segment profit came in at $431 million, up 6.2% year-over-year. The company’s adjusted free cash flow for the quarter stood at $342 million.
On November 8, CAH’s Board of Directors approved a quarterly dividend of $0.4957 per share, payable on January 15, 2023. Its annual dividend of $1.98 yields 2.91%. Moreover, the company’s dividend payouts have grown at a 1% CAGR over the last three years and a 1.6% CAGR over the past five years. The company has a record of 27 years of consecutive dividend growth.
The consensus revenue estimate of $199.25 billion for the fiscal year ending June 2023 represents a 9.9% improvement year-over-year. The consensus EPS estimate of $5.29 for the ongoing year indicates a 4.6% year-over-year growth. Furthermore, the company’s revenue and EPS for the next fiscal year are expected to grow 6.3% and 18% year-over-year to $211.81 billion and $6.25, respectively.
Shares of CAH have gained 51.1% year-to-date and 59.7% over the past year to close the last trading session at $78.57.
CAH’s financial strength and solid growth prospects are reflected in its POWR Ratings. The stock’s overall A rating translates to a Strong Buy in our proprietary rating system.
CAH has a grade of B for Growth and Value. Within the Medical – Services industry, it is ranked #4 of 77 stocks. To see additional POWR Ratings (Sentiment, Quality, Momentum, and Stability) for CAH, click here.
JNJ shares were unchanged in premarket trading Friday. Year-to-date, JNJ has gained 6.48%, versus a -17.02% 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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