Insulation, Stability, Distributions, And Growth
If there is one thing that is certain about the investing environment right now it is that virtually everything is uncertain. We are certainly on track for an economic rebound, the earnings outlook for most companies is improving, but there are still risks. The number one is pandemic. The pandemic is ebbing globally but seems to keep persisting here at home. There have already been a number of re-closings in hard-hit states, if the spread isn’t contained there could be another full-scale economic shutdown.
Now, I don’t think we’re going to have another economic shutdown but I do think investors should be prepared for volatility. The next year or so is going to be tough for the markets which makes stock-picking of utmost importance. In today’s times, investors looking for yield, especially high-yield, need to be focused on companies insulated or boosted by the pandemic with stable revenue and distributions, just like these two.
Duke Energy (NYSE: DUK) - A 4.75% Yielding Utility
Honestly, I can’t really understand why the market isn’t more interested in the Utility Sector right now. Aside from its safe-haven appeal, the sector has the most stable outlook for revenue and earnings growth of any sector in the market. While most sectors will see revenue and earnings fall in 2020 and then rebound in 2021, the Utility Sector is expecting mid-single-digit growth both years. Along with this is a tendency to pay better-than-average dividends which means high-yields for us today.
When I say high-yield I’m talking in the range of 5.0%. Duke Energy (NYSE:DUK), perhaps the best-in-breed among a field of winning stocks, is paying about 4.75% at today’s prices with an expectation for future increase. The company has been increasing the payout for 9 years consecutively with only one red flag, the payout ratio is a bit high compared to the average mainstream S&P 500 companies. However, the fact real assets companies and utilities, in particular, tend to pay out large portions of their earnings to shareholders helps mitigate any risk suggested by the ratio.
On a technical basis, shares of Duke have been moving sideways since recovering the post-pandemic bottom. The new trading range, between $88 and $92, might be breaking down but, if it does, it will only mean higher yields in the days to come. Longer-term, the stock is well-supported in the $72 to $80 range so any pull-back in prices is likely to be met by eager buyers.
Kraft-Heinz (NASDAQ: KHC) - A 5% Yield Lagging Its Peers
Kraft-Heinz (NASDAQ: KHC) is one of the nation’s largest and leading consumer staples companies. One reason it is lagging the group, a group boosted by the pandemic, is because it has struggled with growth since the merger. A little over two years ago the company decided to cut its distribution to save money, money since used to pay down debts, which is another reason its share prices have been wallowing.
That story has changed though. Now, years later, the company is well on the way to achieving its leverage goals with sustainable revenue growth in the forecast. In evidence of this, Bank of America just reiterated its buy rating citing factors like near-term trends, margin improvement, capital allocation, and the improved balance sheet.
At today’s prices, the stock is yielding a little over 5.0% which is well above its peers. If you are looking for dividend growth don’t, the company is still focused on paying down debt, but that doesn’t matter. The distribution is in little danger of suspension or cuts ensuring investors a healthy payout over the next few years.
On a technical basis, the stock is in the process of breaking out to new highs but the move may not take off until after the next earnings report. Price action is moving upward but resistance at the pre-COVID highs is capping gains. Based on today’s report from Conagra Brands (a solid top and bottom-line beat) I am expecting good news from Kraft. The current consensus calls for a slight increase in revenue and modest decline earnings, a bar I think Kraft will easily beat.
Companies Mentioned in This Article
8 Retail Stocks to Own For the Long Haul
There are more than 500 national retailers traded on the NYSE and the NASDAQ. Given the sheer number of big box stores, warehouse clubs, restaurant chains and other retail stores listed on public markets, it can be hard to identify which retailers are going to outperform the market.
Fortunately, some of Wall Street's top analysts have already done most of the work for us.
Every year, analyst issue approximately 4,200 distinct recommendations for retail companies. Analysts may not always get their "buy" ratings right, but it's worth taking a hard look when several analysts from different brokerages and research firm are giving "strong buy" and "buy" ratings to the same retailer.
This slide show lists the 8 retail companies that have the highest average analyst recommendations from Wall Street's equities research analysts over the last 12 months.
View the "8 Retail Stocks to Own For the Long Haul".