3 Inflation-Beating Dividend Stocks Offering Upside
Jesse Cohen | Aug 10, 2022 12:03
- Inflation and rising interest rates dampening sentiment
- Stocks with solid fundamentals, reasonable valuations, high dividends likely outperform
- Philip Morris, Dow, and Chesapeake Energy should be on your radar.
- P/E Ratio: 16.7
- Dividend Yield: 5.12%
- Market Cap: $150.9 billion
- Year-To-Date Performance: +2.8%
- P/E Ratio: 5.9
- Dividend Yield: 5.37%
- Market Cap: $37.8 billion
- Year-To-Date Performance: -7%
- P/E Ratio: 7.8
- Dividend Yield: 10%
- Market Cap: $11.4 billion
- Year-To-Date Performance: +52.2%
Worries over sky-high price-to-earnings ratios poised to outperform in the months ahead.
Philip Morris International/h2
Philip Morris (NYSE:PM) is the world’s biggest tobacco company based on net sales. Its most recognized and best-selling product is the Marlboro brand.
We think shares of the New York-based company are a solid pick as high-quality blue-chip dividend stocks with relatively down-to-earth valuations tend to outperform in an inflationary environment.
The ‘Big Tobacco’ company, which trades at a PE ratio of 16.7 and has a yield of 5.12%, reported second-quarter earnings and revenue which far exceeded expectations, driven by the continued strength of its non-combustible IQOS smoke-free heated tobacco device.
It also raised its full-year profit guidance and now expects it to increase of 10%-12% year-on-year (yoy) due to further progress on operating cost efficiencies.
Per an InvestingPro points to a gain of about 11.3% from current levels, bringing PM closer to its fair value of $108.34.
Dow Inc/h2
Dow Inc (NYSE:DOW), which was spun off from DowDuPont in 2019, is one of the world’s largest commodity chemical producers. It provides a wide range of products, including plastics, coatings, and silicones, to customers in market segments, such as packaging, infrastructure, and consumer applications.
After climbing to a record peak of $71.86 on April 21, DOW fell rapidly to a low of $48.27 on July 14 amid worries over a slowing global economy. The shares have since staged a modest rebound, rising by 9% in the last four weeks.
With a PE ratio below 6, DOW comes at a substantial discount when compared to other notable chemical companies, such as Air Products and Chemicals (NYSE:APD), and DuPont (NYSE:DD), which trade at 26 times and 25 times forward earnings, respectively.
On July 21, Dow delivered better-than-expected Q2 results easing fears that demand for its products might be slowing.
As part of its constant effort to return capital to investors, in Q2 it completed an $800 million share buyback and paid $505 million in dividends. The shares have a yield of 5.37%, one of the highest in the sector.
According to an survey, 20 out of 23 analysts rate the stock ‘outperform’ or ‘hold’, with an average price target of around $60.
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The average fair value on is $77.59, implying around 47% upside.
Chesapeake Energy/h2
Chesapeake Energy (NASDAQ:CHK), which emerged from bankruptcy in February 2021, has been a standout performer in the booming energy sector this year, reaping the benefits of higher natural gas prices.
Shares of the Oklahoma City, Oklahoma-based fracking company have jumped by approximately 52% in 2022, far outpacing the Dow Jones Industrial Average and the S&P 500.
CHK stock's all-time high is $105 reached on May 31 this year but despite a strong year-to-date performance, it remains worth owning due to its ongoing efforts to return excess cash to shareholders.
The energy company, which posted triple-digit yoy growth in Q2 profit and revenue, boosted its annual dividend 10%, thanks to its increasing free cash flow and rapidly improving balance sheet. It now offers a sky-high yield of 10%. The company also recently doubled its stock buyback program to $2 billion.
Chesapeake has a comparatively low PE of 7.8, compared to other prominent names in the oil & gas space including EOG Resources (NYSE:EOG), Pioneer Natural Resources (NYSE:PXD), and Continental Resources (NYSE:CLR).
Disclaimer: At the time of writing, Jesse had a position in CHK shares. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
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