In this article, we will take a look at the 11 boring stocks that pay dividends.
The 2022 market crash and the broader retreat of growth stocks has established one thing: boring is better when it comes to stock investing during volatile times. The euphoric optimism that started after the pandemic on the back of easy money and sky-high valuations abruptly ended in 2022 with painful losses for growth investors who were betting on exciting, flashy tech companies whose profits lie far into the future. On the other hand, so-called “boring” companies which hardly make daily headlines in stock market news, trade on realistic valuations and generate a lot of cash selling stuff that remains important for people took all the limelight during the year. This value outperformance is expected to continue in 2023 as well as financial markets continue to face the effects of rising inflation, increasing interest rates and geopolitical uncertainty.
Earlier this year, Bloomberg quoted Goldman Sachs analyst Peter Oppenheimer, who said that value stocks are expected to outperform growth stocks in 2023 as “big cap technology sees further margin pressure, commodity prices rise and real interest rates remain higher.” Oppenheimer is just one of the many famous investors who were calling for a major tech stocks rout. Morgan Stanley’s famous bear Mike Wilson, who got fame for foreseeing the stock market crash of 2022, also said in March that he was seeing a further 20% downside on some major tech and meme stocks.
In January, Wilson said that he was expecting a “nasty earnings recession and the companies that can deliver on cost efficiency will be the ones that can continue to perform.”
Which companies can deliver on cost efficiency? You guessed it right. Boring companies that make money. Boring companies with prudent business models, realistic valuations and years of dividend growth will be our focus in this article today because these are the companies that are expected to deliver well despite the financial crunch and recession which could last for months or years to come.
During the start of 2023, the US stock market showed signs of a rebound based on hopes that inflation in the country might be getting under control and the Federal Reserve was on path to pause rate hikes. However, subsequent weeks dashed these hopes as data showed the resilience of the labor market and stubborn inflation. However, an important question to ask is: will value stocks continue to perform well if the stock market starts to rebound in the second half of 2023? Is this the right time to pile into boring value stocks? Last year, Northern Trust published some interesting data points citing Chief Investment Officer for Global Equities Michael Hunstad. These data points may answer this question.
Why Should You Invest in Boring Stocks?
The Northern Trust report said that since 1970, there have been six technical recessions in the United States. During six technical recessions in the US since 1970, equity market performance ranged from a 30% decline to a slight increase. However, in the year immediately following these recessions, stock market returns average 22% with value outperforming growth by more than 4% points.
In technical recessions coupled with high inflation, value outperformed growth by over 10% points.
Here’s what the report added about the expected outperformance of value stocks:
“Today’s macroeconomic and market picture supports this view. With sustained high inflation, further rate hikes on the horizon, and declining business and consumer sentiment value stocks may have a long runway. And despite recent outperformance, value stocks haven’t become overly expensive, adding credence to a continued value tilt.”
Why Dividend Stocks?
While value stocks shined in 2022, what took the most of the limelight last year were not-so-boring dividend stocks. Dividend stocks provided a safe haven to investors who were looking for a refuge amid a ruthless economic turmoil. Dividend stocks in 2022 made history and cemented the already-studied phenomenon which says dividend stocks perform better during recessionary periods and high inflation. Earlier this year, Alec Young, MAPsignal’s Chief Investment Strategist, gave an interview to BNNBloomberg about dividend stocks and their performance during inflationary periods. Young said that dividends account for about 40% of the total stock market returns over the long run.
Young said that his firm dug some data and found that dividend stocks do “best when inflation is high like it is now.” Young said that when CPI inflation in the US is between 6% and 7%, dividend stocks outperform non-dividend paying stocks by the widest margins of any other type of inflation environment that we looked at.
Young added that this dividend stocks outperformance was across the board and wasn’t peculiar to say high-yield dividend stocks or dividend growth stocks. He said that dividend stocks fell by mid-single digits in 2022 as compared to the 19% decline for the S&P 500. He was expecting this outperformance to continue in 2023.
“Companies that Make Real Things and Do Real Things”
At the core of any investment thesis propending to buy boring stocks is the rationale that companies that make essential items that sell irrespective of the economic cycle are positioned well to weather any economic storm. As Jim Cramer, probably one of the least boring personalities in the stock investing space, said in a program last year:
“If you took your cue from me and bought common stocks of companies that make real things and do real things that return capital and trade at a reasonable valuation, you’re relatively fine.”
Cramer also identified the “problem” with these boring yet solid companies:
“The problem is those stocks that go down less … they’re really boring.”
Our Methodology
For this article, we scanned Insider Monkey’s database of 943 hedge funds and their holdings and picked top 11 boring companies — companies that aren’t much sexy, have dull but solid, top-selling products and services — that pay dividends.
Boring Stocks That Pay Dividends
11. Sonoco Products Company (NYSE:SON)
Number of Hedge Fund Holders: 17
Packaging company Sonoco Products Company (NYSE:SON) ranks 11th in our list of boring dividend stocks to buy. As of 2022 Sonoco Products Company (NYSE:SON) has increased its dividend for 4 consecutive years. In March, Sonoco Products Company (NYSE:SON) said it expects its adjusted EPS in Q1 to be in the range of $1.30 to $1.40, better than its previous guidance range of $1.15 to $1.25.
Insider Monkey’s database of 943 hedge funds shows that 17 hedge funds had stakes in Sonoco Products Company (NYSE:SON) as of the end of the fourth quarter of 2022. The total worth of these stakes was $158 million. The most notable hedge fund stakeholder of Sonoco Products Company (NYSE:SON) was Ian Simm’s Impax Asset Management which owns a $67 million stake.
10. Kellogg Company (NYSE:K)
Number of Hedge Fund Holders: 26
Cereal company Kellogg Company (NYSE:K) is one of the stocks that remain strong during inflation as the company has the pricing power to transfer the effects of rising inflation to customers. Being a consumer staples company, Kellogg Company (NYSE:K) is also highly popular among defensive investors.
Insider Monkey’s database of 943 hedge funds’ holdings shows that 26 hedge funds had stakes in Kellogg Company (NYSE:K). The biggest stakeholder of Kellogg Company (NYSE:K) was Paul Marshall and Ian Wace’s Marshall Wace LLP which had an $87 million stake in Kellogg Company (NYSE:K). Bridgewater of Ray Dalio had a $41 million stake in Kellogg Company (NYSE:K).
9. Xcel Energy Inc. (NYSE:XEL)
Number of Hedge Fund Holders: 28
Minnesota-based utility company ranks 9th in our list of boring stocks that pay dividends. In February, Xcel Energy Inc. (NYSE:XEL) upped its quarterly dividend by 6.7%. The new dividend is payable on April 20. This marked the 19th consecutive year of dividend increases by Xcel.
Insider Monkey’s database shows that 28 hedge funds entered the first quarter of 2023 with Xcel Energy Inc. (NYSE:XEL) in their portfolios. The most significant hedge fund stakeholder of Xcel Energy Inc. (NYSE:XEL) was Greg Poole’s Echo Street Capital Management which owns a $131 million stake.
8. Williams-Sonoma, Inc. (NYSE:WSM)
Number of Hedge Fund Holders: 29
Kitchenware and home furnishings retailer Williams-Sonoma, Inc. (NYSE:WSM) ranks 8th in our list of boring stocks that pay dividends. In March, Williams-Sonoma, Inc. (NYSE:WSM) increased its quarterly dividend by 15%. Forward dividend yield at the time came in at over 3%. This marked Williams-Sonoma, Inc. (NYSE:WSM)’s 14th consecutive year of dividend increases.
Of the 943 hedge funds tracked by Insider Monkey, 29 hedge funds had stakes in Williams-Sonoma, Inc. (NYSE:WSM). The total worth of these stakes was $305 million. The biggest stakeholder of Williams-Sonoma, Inc. (NYSE:WSM) was Cliff Asness’s AQR Capital Management which had an $83 million stake.
7. Digital Realty Trust, Inc. (NYSE:DLR)
Number of Hedge Fund Holders: 30
Digital Realty Trust, Inc. (NYSE:DLR) is a REIT focused on data centers, colocation and interconnection solutions. Digital Realty Trust, Inc. (NYSE:DLR) is a solid dividend stock with 18 years of consistent dividend growth.
At the end of the last quarter of 2022, 30 hedge funds tracked by Insider Monkey were bullish on Digital Realty Trust, Inc. (NYSE:DLR). The most significant hedge fund stakeholder of Digital Realty Trust, Inc. (NYSE:DLR) was Dmitry Balyasny’s Balyasny Asset Management which owns a $75 million stake in the company.
6. American Water Works Company, Inc. (NYSE:AWK)
Number of Hedge Fund Holders: 31
Utility company American Water Works Company, Inc. (NYSE:AWK) has upped its dividends consistently for 14 years, as of 2022. During the fourth quarter of 2022, American Water Works Company, Inc. (NYSE:AWK)’s GAAP EPS came in at $0.81, beating estimates by $0.01. Revenue in the quarter fell about 2.1% year over year to reach $931 million, beating estimates by $7.26 million. For 2023, American Water Works Company, Inc. (NYSE:AWK) expects EPS in the range of $4.72 to $4.82.
During its Q4 results, American Water Works Company, Inc. (NYSE:AWK) reaffirmed its long-term EPS and dividend growth targets of 7-9%.
At the end of the last quarter of 2022, 31 hedge funds tracked by Insider Monkey had stakes in American Water Works Company, Inc. (NYSE:AWK). The total worth of these stakes was $873 million.
5. The Clorox Company (NYSE:CLX)
Number of Hedge Fund Holders: 34
With over four decades of consistent dividend increase, consumer products company The Clorox Company (NYSE:CLX) ranks 5th in our list of boring stocks that pay dividends. Consumer staples stocks like The Clorox Company (NYSE:CLX) are favored by investors during recessions as these companies make essential items whose sales largely remain unaffected even during economic downturns.
As of the end of the last quarter of 2022, 34 hedge funds had stakes in The Clorox Company (NYSE:CLX). The most significant stakeholder of The Clorox Company (NYSE:CLX) is Andreas Halvorsen’s Viking Global which owns an $108 million stake in the company.
4. Air Products and Chemicals, Inc. (NYSE:APD)
Number of Hedge Fund Holders: 41
Chemical company Air Products and Chemicals, Inc. (NYSE:APD) upped its dividend in January 2023. This was the 41st consecutive year Air Products and Chemicals, Inc. (NYSE:APD) has increased its dividend. In January, Goldman Sachs equity strategy team added Air Products and Chemicals, Inc. (NYSE:APD) in its list of stocks that are poised to benefit from the China reopening.
Insider Monkey’s proprietary database of 943 hedge funds shows that 41 hedge funds had stakes in Air Products and Chemicals, Inc. (NYSE:APD). The total value of these stakes was $508 million. The biggest stakeholder of Air Products and Chemicals, Inc. (NYSE:APD) was Phill Gross and Robert Atchinson’s Adage Capital Management which owns a $70 million stake in the company.
3. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 52
With over six decades of consistent dividend growth, the maker of Scotch tape and Post-It is one of the ideal boring stocks that pay dividends.
Hedge funds also love this dividend stock. As of the end of the fourth quarter of 2022, 52 hedge funds tracked by Insider Money had stakes in 3M Company (NYSE:MMM), up from 49 hedge funds in the previous quarter. The total value of these hedge funds’ stakes is about $1.6 billion. The biggest stakeholder of 3M Company (NYSE:MMM) was Cliff Asness’s AQR Capital Management which owns a $221 million stake.
2. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 68
Retail giant Lowe’s Companies, Inc. (NYSE:LOW) is one of the ideal boring stocks to have in your portfolio during volatile economic times. Recently, BofA screened for what it called “sleep at night” stocks for investors who are looking for safety during these troubled times. Lowe’s Companies, Inc. (NYSE:LOW) made it to BofA’s high-quality defensive group of stocks.
As of the end of the last quarter of 2022, 52 hedge funds tracked by Insider Monkey had stakes in Lowe’s Companies, Inc. (NYSE:LOW). The biggest hedge fund stakeholder of Lowe’s Companies, Inc. (NYSE:LOW) was Pershing Square of Bill Ackman which had a stake of over $2 billion in the company.
1. UnitedHealth Group Incorporated (NYSE:UNH)
Number of Hedge Fund Holders: 110
UnitedHealth Group Incorporated (NYSE:UNH) has a relatively low dividend yield but this boring stock also provides share price appreciation opportunities for long-term investors. In February, UnitedHealth Group Incorporated (NYSE:UNH) declared a quarterly dividend of $1.65 per share. The dividend was payable on March 21 to shareholders of record as of March 13. Morgan Stanley recently gave bullish comments on UnitedHealth Group Incorporated (NYSE:UNH). The firm, which has an Overweight rating on UnitedHealth Group Incorporated (NYSE:UNH) and a $587 price target, believes the company’s resilient and diversified business will create long-term “double-digit earnings growth.”
At the end of the fourth quarter of 2022, 110 hedge funds had stakes in UnitedHealth Group Incorporated (NYSE:UNH), as per Insider Monkey’s database of hedge funds.
Sequoia Fund made the following comment about UnitedHealth Group Incorporated (NYSE:UNH) in its Q4 2022 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH) was among Sequoia’s best performing stocks this year, thanks to typically strong financial results and increased appreciation for the business’ relative insensitivity to the broader economy. For the full year 2022, United’s revenues and EPS are expected to be up approximately 13% and 17%, respectively. Versus 2019, the company’s revenues and EPS are expected to have compounded at annual rates of approximately 10% and 14%, respectively.
UnitedHealth Group may not be a particularly beloved company, but it is one of the more entrenched businesses we’ve come across. Managed care, in its various forms-commercial risk, commercial fee, Medicare Advantage, and managed Medicaid- is an utterly essential component of our healthcare system. And in managed care, no one is bigger, more diversified or better run than United. In addition to its managed care business, United owns and operates the country’s third largest pharmacy benefit manger and is also the single largest owner by a wide margin of non-hospital care assets, including physician practices, urgent care centers, and ambulatory surgical centers…” (Click here to read the full text)
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Disclosure: None. 11 Boring Stocks That Pay Dividends is originally published on Insider Monkey.
