In this article, we will take a look at 10 dividend stocks to buy amid the market decline.
Like many other stocks in 2022, many dividend stocks have fallen substantially this year. The Vanguard Dividend Appreciation ETF, which seeks to track the performance of large cap equity stocks emphasizing stocks with a record of growing dividends year over year, has fallen 17.73% year to date as of 10/17.
One reason for the decline is the five Federal Reserve rate hikes this year. With the rate hikes, risk free Treasuries are yielding more than before. While the 10 year Treasury yield was 1.512% at the end of last year, the yield is now 3.99% as of 10/17. As a result of higher Treasury yields, stocks with the same dividend yields as before the rate hikes are less attractive to many buyers.
There is potential for more rate hikes in the future. Federal Reserve Chair Jerome Powell said in September, “My main message has not changed since Jackson Hole. The FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.” Currently core inflation is at 6.6%, which is a 40 year high.
Given the rapid rate of the rate hikes, there is also a potential for a recession next year, which some economists estimate to be around a 60% probability. Other economists estimate an even higher probability for a recession.
Given the interest rate and economic headwinds, many dividend stocks have fallen substantially. The S&P 500 index has also fallen 23% year to date and the Dow Jones Industrial Average, which is comprised of larger cap stocks than the S&P 500, is down around 17.5% year to date.
Given the uncertainty, it could be a good idea for investors to have a well diversified portfolio of stocks across different sectors. While there is potential for even more downside in the dividend sector if economic data fails to meet expectations, there could also be opportunities for long term investors who buy quality dividend stocks.
In terms of some of the dividend stocks we think are worthy of consideration, here are 10:
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Methodology
For our list of 10 Dividend Stocks to Buy Amid the Market Decline, we picked 10 stocks with dividend yields of over 2% as of 10/17 that we think have the right mix of value and growth for long term investors. Using the collective wisdom of hedge funds, we then ranked the 10 based on the number of hedge fund holders that held shares in each stock at the end of Q2 2022.
10 Dividend Stocks to Buy Amid the Market Decline
10. The Coca-Cola Company (NYSE:KO)
Dividend Yield as of 10/17: 3.16%
Number of Hedge Fund Holders: 60
The Coca-Cola Company (NYSE:KO) is a high quality dividend stock given its dividend yield of 3.16% as of 10/17 as well as its 60 consecutive years of raising its annual dividend. Given the market decline, The Coca-Cola Company now trades at a forward P/E ratio of 21.75, which could be attractive in the long term given the company’s high quality earnings.
Aristotle Capital commented on The Coca-Cola Company in its Q2 2022 letter earlier in the year,
“The Coca-Cola Company, the global beverage business, was a leading contributor for the period. Coca-Cola continues to benefit from the refranchising of its bottling operations and realignment of incentives, catalysts we previously identified. These initiatives are demonstrating their strength in an inflationary and supply-chain-challenged environment. Additionally, the company has focused on evolving its customer engagement practices by leveraging digital and social medias for targeted campaigns, such as the design and launch of Coke Byte in the metaverse. Lastly, Coca-Cola has furthered its transformation into a total beverage company, as it debuted its new Jack Daniel’s Tennessee Whiskey and Coca-Cola ready-to-drink premixed cocktail. Although uncertainties surrounding cost pressures, lockdowns and geopolitical conflicts remain, we believe Coca-Cola is uniquely positioned to successfully continue its transition toward a total beverage business.”
Of the 895 hedge funds in our database, 60 owned shares of The Coca-Cola Company at the end of the second quarter.
Alongside Johnson & Johnson, Bank of America Corporation (NYSE:BAC), and JPMorgan Chase & Co., The Coca-Cola Company is also a quality dividend stock many hedge funds owned at the end of Q2 2022.
9. PepsiCo, Inc. (NASDAQ:PEP)
Dividend Yield as of 10/17: 2.66%
Number of Hedge Fund Holders: 65
PepsiCo, Inc. (NASDAQ:PEP) is also a stock with a strong dividend history given its 50 consecutive years of increasing its annual dividend. With a yield of 2.66% as of 10/17, PepsiCo, Inc. also has a higher yield than the average consumer staples dividend yield of 1.89%. Unlike the broader market, PepsiCo, Inc. hasn’t really fallen much this year, with shares down 0.56% year to date.
65 hedge funds we track owned shares of PepsiCo, Inc. at the end of the second quarter with Yacktman Asset Management holding over 4.25 million shares.
8. Pfizer Inc. (NYSE:PFE)
Dividend Yield as of 10/17: 3.67%
Number of Hedge Fund Holders: 70
Pfizer Inc. (NYSE:PFE) is one of the leading pharmaceutical giants in the world and also a leader when it comes to making Covid-19 vaccines. Given Covid-19 has mutated, Pfizer will need to keep innovating as well.
Given its research and development skills, Pfizer Inc. could likely also develop other vaccines and potential treatments for the world’s ailments in the future that could potentially increase earnings. As a dividend payer, Pfizer Inc. has increased its annual dividend for 11 straight years and has a dividend yield of 3.67% as of 10/17.
70 hedge funds we track owned shares of Pfizer Inc. at the end of Q2 2022.
7. AbbVie Inc. (NYSE:ABBV)
Dividend Yield as of 10/17: 3.91%
Number of Hedge Fund Holders: 71
AbbVie Inc. (NYSE:ABBV) is a dividend aristocrat given that it has increased its annual dividend for 50 consecutive years. With a dividend yield of 3.91% as of 10/17, AbbVie Inc. also has a higher yield than some comparable companies in the pharmaceutical sector. On 10/13, Terence Flynn of Morgan Stanley named the stock his ‘Catalyst Drive Idea’ citing AbbVie Inc.’s anti-TNF ADC Phase 2 data. Flynn kept his $185 price target and ‘Overweight’ rating.
71 hedge funds in our database held shares of AbbVie Inc. at the end of the second quarter. Among them, GQG Partners was among the top five with a holding of over 3 million shares.
6. The Procter & Gamble Company (NYSE:PG)
Dividend Yield as of 10/17: 2.87%
Number of Hedge Fund Holders: 71
The Procter & Gamble Company is another dividend aristocrat with the company having increased its annual dividend for 66 straight years. Given the dividend raises, The Procter & Gamble Company has a dividend yield of 2.87% as of 10/17.
In the near term the company faces potential currency headwinds as well potential macroeconomic headwinds in 2023 if the economy weakens. Although inflation is also a headwind given that some consumers might opt for cheaper brands, The Procter & Gamble Company is adjusting its advertising to help prevent switching. In the long term, The Procter & Gamble Company is still a high quality company given its earnings power.
71 hedge funds we track owned shares of The Procter & Gamble Company at the end of Q2 2022, ranking it #6 on our list of 10 Dividend Stocks to Buy Amid the Market Decline. Among the funds, D E Shaw owned almost 3.7 million shares of The Procter & Gamble Company.
Like The Procter & Gamble Company, Johnson & Johnson, Bank of America Corporation, and JPMorgan Chase & Co. are high quality dividend stocks that many hedge funds owned at the end of the second quarter.
5. Merck & Co., Inc. (NYSE:MRK)
Dividend Yield as of 10/17: 2.93%
Number of Hedge Fund Holders: 79
Merck & Co., Inc. is a giant in the pharmaceutical industry that has increased its annual dividend for 11 straight years. As of 10/17, Merck & Co., Inc. has a dividend yield of 2.93% and a forward P/E ratio of 12.59, which is pretty attractive. Although the company faces headwinds in terms of valuation if there is a recession, Merck & Co., Inc. shares are nevertheless near an all time high and the stock has potential to go higher in the long run if it continues innovating.
79 hedge funds in our database held shares of Merck & Co., Inc. at the end of Q2 2022 with Renaissance Technologies among the top 5 with a holding of over 6.7 million shares.
4. The Home Depot, Inc. (NYSE:HD)
Dividend Yield as of 10/17: 2.7%
Number of Hedge Fund Holders: 80
Although the housing market isn’t very strong right now given the interest rate increases, The Home Depot, Inc. (NYSE:HD) nevertheless is attractive long term given its earnings power and its growth potential. The Home Depot, Inc. also has a pretty attractive current valuation with a forward P/E ratio of 16.22 as of 10/17. The stock has a dividend yield of 2.7% and the company has increased its annual dividend for 12 straight years. Although its stock could go lower if there is a recession or if the markets fall, The Home Depot, Inc. is a quality stock.
80 hedge funds in our database were bullish on The Home Depot, Inc. at the end of the second quarter.
3. Johnson & Johnson (NYSE:JNJ)
Dividend Yield as of 10/17: 2.71%
Number of Hedge Fund Holders: 83
Johnson & Johnson is another dividend aristocrat given that it has increased its annual dividend for 60 consecutive years. As a result, it has a dividend yield of 2.71% as of 10/17. Although conglomerates aren’t as popular as they were in the 90’s, Johnson & Johnson is a healthcare conglomerate that has only grown over time. In terms of the future, Johnson & Johnson could be a good investment if it continues growing its earnings per share like the market expects.
83 hedge funds in our database were long Johnson & Johnson at the end of Q2 2022 with Fisher Asset Management holding over 5.7 million shares.
2. Bank of America Corporation (NYSE:BAC)
Dividend Yield as of 10/17: 2.62%
Number of Hedge Fund Holders: 99
Bank of America Corporation has benefited from the increasing interest rates with greater net interest income. The rapid rate of the raises, however, could eventually cause a recession that might not be as great for Bank of America Corporation’s earnings in 2023. As a result, the stock is trading at a forward P/E ratio of 9.14 as of 10/17.
While Bank of America Corporation’s stock could decline if the market declines, the company is still attractive long term given its earnings potential. Bank of America Corporation also pays a dividend yield of 2.62% as of 10/17.
Bank of America Corporation ranks #2 on our list of 10 Dividend Stocks to Buy Amid the Market Decline given that 99 hedge funds in our database held shares of the bank at the end of the second quarter.
1. JPMorgan Chase & Co. (NYSE:JPM)
Dividend Yield as of 10/17: 3.45%
Number of Hedge Fund Holders: 104
Although it doesn’t have as long of a history of raising its annual dividend as some other stocks on this list, JPMorgan Chase & Co. still ranks #1 on our list of 10 Dividend Stocks to Buy Amid the Market Decline.
Due to the Great Recession, JPMorgan Chase & Co. had to cut its annual dividend and the bank couldn’t raise its dividend until a few years later.
Since 2012, however, JPMorgan Chase & Co. has increased its annual dividend every year and the stock now yields 3.18%. Although its stock could decline further in an economic recession due to write downs affecting earnings, JPMorgan Chase & Co. remains arguably the strongest of the big 4 banks and the stock has upside in terms of the long term.
104 hedge funds in our database owned shares of the stock at the end of Q2 2022.
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This article is originally published at Insider Monkey.
