The stock market is projected to remain highly unpredictable in the near term, owing to persistently high inflation, rising interest rates, and other macroeconomic headwinds. So, it could be wise to buy quality dividend stocks Cisco Systems, Inc. (CSCO), Verizon Communications Inc. (VZ), and Honeywell International Inc. (HON).
According to the Commerce Department, the core personal consumption expenditures price index grew 0.4% in April and 4.7% year on year, indicating that pricing pressures remain in the economy.
The United States economic activity appears to have stalled in recent weeks, with job growth and inflation both slowing and near-term business outlook looking slightly worse than previously.
In its latest “Beige Book” compendium of surveys and interviews, the U.S. central bank said, “Expectations for future growth deteriorated a little, though contacts still largely expected a further expansion in activity.”
In addition, according to top economist David Rosenberg, a US recession has already set in, but “nobody's noticed."
Given the current situation, dividend stocks could be great investments. Therefore, let us look deeper into the fundamentals of the featured stocks.
Cisco Systems, Inc. (CSCO)
CSCO is engaged in designing, manufacturing, and selling Internet Protocol-based networking and other products related to the communications and information technology industry. The company offers wireless products, routed optical networking, 5G, silicon, and optics solutions, etc.
On April 24, 2023, CSCO launched a new solution, Cisco Extended Detection and Response (XDR), as well as improved functionality for Duo MFA, to detect sophisticated cyber threats and automate response. This push to improve cybersecurity solutions should help firms better secure the integrity of their entire IT ecosystem while also increasing income.
CSCO’s trailing-12-month ROCE of 27.74% is significantly higher than the industry average of 0.50%. Its trailing-12-month ROTA of 11.76% is significantly higher than the industry average of 0.08%.
CSCO has paid dividends for 11 consecutive years. Over the last three years, CSCO’s dividend payouts have grown at 2.8% CAGR. CSCO’s four-year average dividend yield is 3.04%. Its forward annual dividend of $1.56 translates to a 3.14% yield.
CSCO’s total revenue increased 13.5% year-over-year to $14.57 billion in the third quarter that ended April 29, 2023. The company’s gross margin rose 13.7% from the year-ago value to $9.23 billion, while its non-GAAP net income increased 13.9% from the prior-year quarter to $4.10 billion.
Also, its non-GAAP EPS stood at $1 per share, up 14.9% year-over-year.
The consensus revenue estimate of $56.85 billion for the year ending July 2023 represents a 10.3% increase year-over-year. Its EPS is expected to grow 13.4% year-over-year to $3.81 for the same period. It surpassed EPS estimates in all four trailing quarters.
CSCO’s shares have gained 11.1% over the past nine months to close the last trading session at $49.67.
CSCO’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CSCO has an A grade for Quality and a B for Stability. It is ranked #3 out of 50 stocks in the Technology - Communication/Networking industry. Click here for the additional POWR Ratings for Momentum, Sentiment, Growth, and Value for CSCO.
Verizon Communications Inc. (VZ)
VZ offers communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. It operates through two segments: Consumer and Business.
VZ’s trailing-12-month net income margin of 15.85% is 463.8% higher than the industry average of 2.81%. Its trailing-12-month ROCE of 24.44% is 643.5% higher than the industry average of 3.29%.
VZ has paid dividends for 22 consecutive years. Over the last three years, VZ’s dividend payouts have grown at 2% CAGR. VZ’s four-year average dividend yield is 4.92%. Its forward annual dividend of $2.61 translates to a 7.33% yield.
VZ’s net income increased 6.5% year-over-year to $5.02 billion for the fiscal 2023 first quarter that ended March 31, 2023. Its EPS came in at $1.17, up 7.3% year-over-year. Also, its total operating expenses came in at $25.33 billion, down marginally year-over-year.
Analysts expect VZ’s revenue to increase marginally year-over-year to $137.54 billion for fiscal year ending December 2024. Its EPS is expected to grow marginally year-over-year to $4.72 for the same period. VZ’s shares have gained 2.1% intraday to close its last trading session at $35.63.
VZ has a B grade for Stability in our proprietary rating system. It is ranked #5 out of 18 stocks in the Telecom - Domestic industry.
Beyond what is stated above, we’ve also rated VZ for Growth, Value, Sentiment, Momentum and Quality. Get all VZ ratings here.
Honeywell International Inc. (HON)
HON is a global provider of services in the industrial and technology sectors. Aerospace; Honeywell Building Technologies; Performance Materials and Technologies; and Safety and Productivity Solutions are its four business segments.
HON’s trailing-12-month EBIT margin of 20.10% is 107.2% higher than the industry average of 9.70%. Its trailing-12-month net income margin of 14.54% is 126.3% higher than the industry average of 6.42%.
HON has paid dividends for 20 consecutive years. Over the last three years, HON’s dividend payouts have grown at 5% CAGR. HON’s four-year average dividend yield is 2.18%. Its forward annual dividend of $4.12 translates to a 2.15% yield.
HON’s net sales increased 5.8% year-over-year to $8.86 billion in the fiscal first quarter that ended March 31, 2023. The company’s net income and EPS came in at $1.41 billion and $2.07, up 24.2% and 26.2% year-over-year, respectively, in the same period.
Street expects HON’s revenue to increase 4.3% year-over-year to $37 billion for the year ending December 2023. Its EPS is expected to increase 4.4% year-over-year to $9.15 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained marginally over the past nine months to close the last trading session at $191.60.
HON’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #37 out of 78 stocks in the A-rated Industrial - Machinery industry. It has a B for Stability, Momentum, and Quality. To see additional HON’s rating for Value, Sentiment and Growth, click here.
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CSCO shares were trading at $49.75 per share on Thursday afternoon, up $0.08 (+0.16%). Year-to-date, CSCO has gained 6.05%, versus a 10.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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