The U.S. stock market continues to be a volatile place.
Despite making a strong comeback in July and early August, the benchmark S&P 500 Index is still down 15% year to date.
But you don’t necessarily need a rallying market to make money in stocks — you can also collect dividends.
A team of Goldman Sachs analysts — led by chief investment officer David Kostin — have just compiled a list of stocks that could be an opportunity for income hunters. These companies offer attractive valuations, high dividend yields, and solid growth prospects.
The team points out that dividend stocks are well-positioned for inflationary periods. In July, U.S. consumer prices rose 8.5% from a year ago.
At the same time, Kostin’s team notes that dividend-paying companies often boast strong balance sheets. In the event of an economic downturn, strong balance sheets can help them withstand the storm.
Here’s a look at three companies on the list.
Pioneer Natural Resources (PXD)
Pioneer Natural Resources is an independent oil and gas exploration and production specialist.
Thanks to the strong rallies in oil and gas prices this year, the company is firing on all cylinders. Year to date, PXD shares are up 35% — in stark contrast to the broad market’s double-digit loss.
But it’s the sheer size of Pioneer’s shareholder payout that makes it stand out.
The company’s board recently declared a cash dividend of $8.57 per share for the third quarter. On an annualized basis, that translates to a yield of 13.3%
However, note that Pioneer has a base-plus-variable dividend policy. Its newly-declared payout includes a $1.10 base quarterly dividend and a $7.47 variable dividend.
In other words, the payouts are not carved in stone. But if the market for energy commodities remains strong, the company will likely continue dishing out oversized dividends.
Lumen Technologies (LUMN)
Lumen Technologies is a technology and communications company with 450,000 route miles of fiber and customers in more than 60 countries. It offers a wide range of network, edge cloud, security, communication and collaboration solutions.
Unlike Pioneer, Lumen stock hasn’t been a hot commodity — shares are down about 15% year to date. But the company still deserves dividend investors’ attention.
Paying quarterly dividends of 25 cents per share, Lumen offers an annual dividend yield of 9.3%.
If you are wondering whether that level of payout is sustainable, management’s latest outlook might cheer you up.
In the Q2 earnings release, the company reiterated its full-year outlook, which includes paying dividends of $1.00 per share for the year — amounting to approximately $1.04 billion in total. Meanwhile, management expects Lumen to generate free cash flow of $2.0 to $2.2 billion for the year.
Therefore, if the company achieves its guidance range, it would be able to cover its payout with ease in 2022.
Simon Property Group (SPG)
Simon Property belongs to a group called real estate investment trusts — companies that own and operate income-producing properties on investors’ behalf.
REITs are particularly appealing to income investors because they allow you to collect rent checks without having to be a landlord.
Simon Property owns commercial real estate — shopping malls, outlet centers, and community/lifestyle centers — across North America, Europe, and Asia. At its U.S. malls and outlets, occupancy rate was 93.9% at the end of June.
The company’s board of directors has already announced two increases to the quarterly dividend rate this year — first from $1.65 to $1.70 per share, then to $1.75 per share.
At the current share price, the REIT provides an annual dividend yield of 6.7%.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Leave a Reply