The Federal Reserve this week increased interest rates for the ninth time since last year and shows no indication of rate cuts this year despite lingering recession fears. As the macroeconomic backdrop remains uncertain, investors could consider buying fundamentally strong, dividend-paying stocks Walmart (WMT), Elevance Health (ELV), and Canon (CAJ) for solid gains. Continue reading….
Despite the recent banking crisis, the Fed approved another interest rate hike to control elevated inflation. Amid the Fed’s persistent hawkish stance and bank stress, the odds of a recession are increasing. Despite uncertain macroeconomic conditions, it could be wise to invest in fundamentally sound, dividend-paying stocks Walmart Inc. (WMT), Elevance Health, Inc. (ELV), and Canon Inc. (CAJ) for steady returns.
In an effort to combat persistently high inflation, the Federal Reserve raised interest rates for the ninth consecutive time by a quarter point on Wednesday despite the recent turmoil in the financial sector. This takes the benchmark federal funds rates to a range of 4.75% to 5%, the highest level since September 2007.
Fed Chair Jerome Powell said, “rate cuts are not in our base case” for the remainder of 2023 despite several economists urging the Fed to pause rate hikes due to concerns of overcorrecting the economy into recession. The Fed’s prediction for the economy’s expansion this year has also fallen from 0.5% in December to 0.4%.
Chief economist at Goldman Sachs Group, Jan Hatzius, has raised the probability of a recession in the next 12 months from the previous estimate of 25% to 35%, citing heightened near-term uncertainty around the economic impacts of the banking crisis.
Furthermore, Stephanie Pomboy, who worked at ISI Group for over a decade and is one of several experts sounding the alarm on stocks and the economy, expects stocks to plunge 30% this year. Meanwhile, Jeremy Grantham, an esteemed market historian and veteran investor, anticipates a more dire scenario, forecasting a 50% decline in the S&P 500.
Investors seeking to navigate a volatile macroeconomic landscape might consider buying quality, dividend-paying stocks WMT, ELV, and CAJ for stable returns. Let’s evaluate what factors make these featured stocks worthy of investment.
Walmart Inc. (WMT)
WMT dispenses a diverse array of merchandise and amenities through the retail and e-commerce channels, catering to a wide range of customers with its cost-effective Everyday Low-Price scheme. It operates through three segments, Walmart U.S.; Walmart International; and Sam’s Club.
On March 2, WMT announced its plan to open 28 new Walmart Health centers by 2024, which is expected to expand its reach to two new states, Missouri and Arizona, while strengthening its presence in Texas. The move could significantly bolster the company’s operational capabilities, with more than 75 such centers by the end of 2024.
On February 28, WMT and Citigroup (C) announced their partnership to offer the Bridge built by Citi platform to WMT’s 10,000 Small and Medium-sized Businesses (SMBs) in the U.S.-based supplier network. The alliance should enable WMT’s suppliers to access the necessary capital to grow, thus driving the company’s expansion.
Also, on February 21, the company announced an annual dividend of $2.28 per share for fiscal 2024, a 2% increase over the previous fiscal year’s payout of $2.24 per share. WMT’s annual dividend of $2.28 yields 1.63% on the current price level. It has a long history of increasing dividends for 49 consecutive years.
For the fourth quarter that ended January 31, 2023, WMT’s total revenues increased 7.3% year-over-year to $164.05 billion. Its income before income taxes rose 86.2% from the year-ago value to $8.90 billion. In addition, the company’s consolidated net income grew 59.9% year-over-year to $5.81 billion, while its adjusted EPS came in at $1.71, up 11.8% year-over-year.
The consensus revenue estimate of $649.91 billion for the fiscal year ending January 2025 reflects a 3.5% year-over-year improvement. Likewise, the consensus EPS estimate of $6.79 for the next year indicates an 11.2% rise year-over-year. Moreover, the company surpassed its consensus EPS estimates in three of four trailing quarters.
The stock has gained 8.1% over the past six months to close the last trading session at $140.65.
WMT’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating 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.
WMT has an A grade for Stability and a B for Sentiment and Quality. It ranks #2 in the A-rated 37-stock Grocery/Big Box Retailers industry.
In addition to the POWR Ratings I’ve just highlighted, you can see WMT’s ratings for Growth, Value, and Momentum here.
Elevance Health, Inc. (ELV)
ELV operates as a health benefits company that offers its customers an extensive range of medical, digital, pharmacy, behavioral, clinical, and care solutions. Its segments include Commercial & Specialty Business; Government Business; CarelonRx; and Other.
On February 15, ELV concluded its acquisition of BioPlus, a leading specialty pharmacy subsidiary of CarepathRx, a Nautic Partners portfolio company. The purchase should strengthen ELV’s capacity to offer end-to-end pharmacy services to its customers, resulting in increased affordability and an improved overall patient experience.
Furthermore, on January 23, ELV and Blue Cross and Blue Shield of Louisiana (BCBSLA) signed a definitive agreement that entails ELV’s acquisition of BCBSLA. The acquisition represents a significant strategic opportunity for ELV to expand its reach and capabilities within the healthcare industry, particularly in Louisiana.
For the fourth quarter that ended December 31, 2022, ELV’s total revenue increased 9.2% year-over-year to $39.93 billion, while its operating revenue grew 10.1% from the year-ago value to $39.67 billion. As of December 31, 2022, the company’s cash and cash equivalents stood at $7.39 billion, compared to $4.88 billion as of December 31, 2021.
ELV has raised its dividends for 11 consecutive years. It pays a $5.92 per share dividend annually, translating to a 1.27% yield on the current price level. Its dividend payouts have grown at a 16.7% CAGR over the past three years, and its four-year average dividend yield is 1.12%.
Analysts expect ELV’s EPS to increase 12.8% year-over-year to $32.79 for the fiscal year ending December 2023. The company’s revenue for the ongoing year is expected to grow 5.8% year-over-year to $164.71 billion. Furthermore, the company topped its consensus EPS and revenue estimates in all four trailing quarters, which is impressive.
The stock has plunged 1.7% over the past six months to close the last trading session at $446.30.
ELV’s solid fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
ELV has a B grade for Quality, Value, and Stability. It is ranked #2 out of 10 stocks in the A-rated Medical – Health Insurance industry.
In addition to the POWR Ratings I’ve just highlighted, you can see ELV ratings for Growth, Sentiment, and Momentum here.
Canon Inc. (CAJ)
Headquartered in Tokyo, Japan, CAJ produces and distributes office multifunction devices and related products. It operates through four segments, Printing Business Unit; Imaging Business Unit; Medical Business Unit; and Industrial and Others Business Unit. It also provides maintenance services and replacement supplies.
On March 23, CAJ announced that it had agreed to acquire technology assets from Kyoto Seisakusho Co., Ltd, to enable the mass production of cells for clinical applications. The acquisition would allow the company to produce high-quality cells at a lower cost, providing the company with a strategic advantage in the emerging field of regenerative medicine.
On November 24, 2022, the company announced its plans to establish a new subsidiary named Canon Healthcare USA, Inc. Intending to bolster its presence in the influential American medical market, CAJ seeks to expedite the growth of its medical business.
For the fourth quarter that ended December 31, 2022, CAJ’s net sales grew 14.7% year-over-year to ¥4.03trillion ($30.31 billion), and its operating profit rose 25.4% from the prior year’s period to ¥353.39 billion ($2.65 billion). Also, the net income attributable to CAJ increased 13.6% year-over-year to ¥243.96 billion ($1.83 billion), and its EPS came in at ¥236.63, up 15.3% year-over-year.
The company pays a $0.90 per share dividend annually, translating to a 4.14% yield on the current price level. CAJ’s dividend payouts have grown at a 6.6% CAGR over the past three years, and its four-year average dividend yield is 3.85%.
The consensus revenue estimate of $31.31 billion for the fiscal year ending December 2023 reflects a 134.8% year-over-year improvement. Likewise, the consensus EPS estimate of $1.92 for the current year indicates a 3.4% rise from the previous year. The stock has gained 1.2% over the past five days to close the last trading session at $21.81.
CAJ’s POWR Ratings reflect its promising prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Quality, Stability, and Value. Within the Technology – Hardware industry, it ranks #4 of 42 stocks.
To see additional POWR Ratings for Sentiment, Growth, and Momentum for CAJ, click here.
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WMT shares were trading at $142.17 per share on Friday afternoon, up $1.52 (+1.08%). Year-to-date, WMT has gained 0.68%, versus a 3.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal’s passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor’s degree in finance and is pursuing the CFA program.
She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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