Central bankers worldwide have warned they will have to hold interest rates at higher levels for longer despite recent progress in the fight against inflation. Following the Fed’s indication of more rate hikes next year, the risk of a recession has increased notably.

In addition, the Federal Reserve predicted in its economic forecast that the rate of unemployment, which is 3.7% currently, would increase to 4.6% by the end of next year. Those numbers mean about 2 million Americans would have to lose their jobs, and the unemployment rate has never risen that much outside of a recession.

Moreover, Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, is warning clients about a looming plunge in corporate profits in 2023 amid market uncertainty.

Amid the heightened recessionary fear in the market, we advise investors to invest in fundamentally strong stocks Microsoft Corporation (MSFT), Murphy USA Inc. (MUSA), and Acuity Brands, Inc. (AYI), which look poised to deliver stress-free returns in 2023. Moreover, these companies pay stable dividends.

Microsoft Corporation (MSFT)

MSFT develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes; Intelligent Cloud; and More Personal Computing.

On December 14, MSFT and Viasat (VSAT) announced a new partnership to help deliver internet access to 10 million people around the globe, including 5 million across Africa. Through this partnership, both companies are working to deliver connectivity and digital literacy for better education, healthcare, and economic opportunity in critical markets.

On December 12, 2022, MSFT announced a 10-year-long partnership with the London Stock Exchange Group (LSEG) and took approximately a 4% stake in it, while LSEG is to spend a minimum of $2.8 billion on cloud-related products with MSFT over the decade.

The deal will see various MSFT products being used across different parts of LSEG’s business, and both will also work together in developing new professional collaboration tools.

On September 20, MSFT declared a quarterly dividend of $0.68 per share that was payable to shareholders on December 8, reflecting a 10% increase over the previous quarter’s dividend.

Its annual dividend of $2.72 yields 1.12% on prevailing prices. The company’s dividend payouts have increased at a 10.5% CAGR over the past three years and a 9.8% CAGR over the past five years. MSFT has a record of 18 years of consecutive dividend growth.

For the first quarter of the fiscal year 2023 ended September 30, MSFT’s total revenue increased 10.6% year-over-year to $50.12 billion, while its service and other revenue came in at $34.38 billion, up 19.9% year-over-year. The company’s operating income grew 6.3% from the year-ago value to $21.52 billion.

MSFT’s consensus EPS estimate of $2.36 for the fiscal third quarter ending March 2023 indicates a 6.1% improvement year-over-year. Its consensus revenue estimate of $52.87 billion for the same quarter represents a rise of 7.1% year-over-year. MSFT has topped consensus EPS and revenue estimates in three of the trailing four quarters, which is impressive.

The stock gained marginally intraday to close the last trading session at $241.80.

MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has a B grade for Stability, Sentiment, and Quality. It is ranked #9 out of 53 stocks in the Software – Business industry.

To see additional POWR Ratings for Value, Growth, and Momentum for MSFT, click here.

Murphy USA Inc. (MUSA)

MUSA engages in the marketing of retail motor fuel products and convenience merchandise. The company operates retail stores under the Murphy USA, Murphy Express, and QuickChek brands.

On October 20, MUSA declared a quarterly cash dividend of $0.35 per share, reflecting a 9% increase from the prior quarter that was payable on December 1, 2022. Its four-year average dividend yield is 0.24%, and its forward annual dividend of $1.40 per share translates to a 0.49% yield.

MUSA’s total operating revenues rose 34.7% year-over-year to $6.19 billion for the third quarter ended September 30, 2022. The company’s net income increased 111.1% year-over-year to $219.50 million. Its adjusted EBITDA increased 72.7% year-over-year to $367.00 million, while its EPS grew 133.2% from the prior-year quarter to $9.28.

MUSA’s revenue is expected to rise 36.8% year-over-year to $23.75 billion in the current fiscal year ending December 2022. Its EPS is expected to improve 88.2% year-over-year to $28.70 in the current year. Moreover, the company has a remarkable earnings surprise history, surpassing the consensus EPS and revenue estimates in each of the trailing four quarters.

The stock has gained 49.8% over the past year to close the last trading session at $287.13.

It is no surprise that MUSA has an overall rating of B, which translates to a Buy in our proprietary rating system.

The company has a B grade for Growth, Value, and Quality. Within the Specialty Retailers industry, it is ranked #2 out of 46 stocks.

Click here to see the additional ratings of MUSA for Momentum, Stability, and Sentiment.

Acuity Brands, Inc. (AYI)

AYI provides lighting and building management solutions in North America and internationally. The company operates through two segments: Acuity Brands Lighting and Lighting Controls (ABL) and Intelligent Spaces Group (ISG).

On September 29, AYI declared a quarterly dividend of 13 cents per share that was payable on November 1, 2022. Its annual dividend of $0.52 yields 0.31% on prevailing prices. The company has a 4-year average dividend yield of 0.36%.

AYI’s net sales increased 11.8% year-over-year to $1.11 billion in the fourth quarter ended August 31, 2022. The company’s non-GAAP net income increased 11.1% from the year-ago value to $130.80 million, while its non-GAAP EPS rose 20.8% from the prior-year quarter to $3.95. Its adjusted EBITDA increased 6.8% year-over-year to $182.90 million.

Analysts expect AYI’s EPS and revenue to increase 5.3% and 6.9% year-over-year to $3.00 and $989.89 million, respectively, in the fiscal first quarter that ended November 2022. The stock has also surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.

It has gained 8.5% over the past six months to close the last trading session at $166.53.

AYI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our rating system.

It has an A grade for Quality and a B for Value. Among the 59 stocks in the Home Improvement & Goods industry, it is ranked #3.

To access additional POWR Ratings for AYI for Growth, Momentum, Stability, and Sentiment, click here.

MSFT shares rose $0.45 (+0.19%) in premarket trading Wednesday. Year-to-date, MSFT has declined -27.23%, versus a -17.97% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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