The major market indices started the week on a weak note due to investors’ concerns over rising Treasury yields and a looming central bank interest rate hike that may happen earlier than expected. Given this backdrop, we think investors can sidestep market volatility by investing in undervalued dividend stocks GlaxoSmithKline (GSK), Tyson Foods (TSN), Cardinal Health (CAH), and Penske Automotive (PAG). Let’s discuss.
The major market indices closed slightly lower yesterday after recovering from an early slide. The S&P 500 declined 6.74 points to close at 4,670.29, while the Dow Jones Industrial Average fell 162.79 points to close at 36,068.87. The Nasdaq gained 0.1% to close at 14,942.83, bouncing back from a decline earlier on Monday.
The weak start to the New Year was caused by the continuing rise in government bond yields. With inflation rising, investors believe that the Fed will be forced to raise interest rates earlier than expected. According to Charles Schwab’s Randy Frederick, “So now you have the potential for interest rates, which appeared like they might not start going up until June. Now there’s like an 80% probability that will happen in March.”
Given this backdrop, we think it could be wise to bet on quality dividend-paying stocks to hedge portfolios against market volatility by ensuring a steady income stream. As such, GlaxoSmithKline plc (GSK), Tyson Foods, Inc. (TSN), Cardinal Health, Inc. (CAH), and Penske Automotive Group, Inc. (PAG) could be solid additions to one’s portfolio given their stable dividend payouts. They are also currently trading at discounts to their peers.
GlaxoSmithKline plc (GSK)
Headquartered in Brentford, U.K., GSK is a global healthcare company. It operates through two segments: Pharmaceuticals and Vaccines. Also, its primary research areas include respiratory diseases, human immunodeficiency virus (HIV)/infectious diseases, vaccines, immune-inflammation, oncology, and rare diseases.
On Dec.2, GSK said that laboratory analysis of an antibody-based COVID-19 therapy developed with Vir Biotechnology, Inc. (VIR) is effective against the new omicron variant. So, this could lead to increased demand for the solution amid omicron-related concerns.
Over the last three years, GSK’s dividend payout has grown at a 10.38% CAGR. Its four-year average dividend yield is 5.27%, and its current dividend translates to a 4.91% yield. The company began paying dividends in 1995. It is expected to pay a $0.52 quarterly dividend per share on January 13, 2022.
For its fiscal third quarter, ended Sept. 30, 2021, GSK’s turnover increased 5% year-over-year to £9.07 billion ($12.01 billion). The company’s adjusted operating profit increased 8% year-over-year to £2.87 billion ($3.80 billion). In addition, its adjusted EPS came in at 36.60p, up 3% year-over-year.
In terms of forward EV/S and P/S, GSK’s respective 3.23x and 2.39x are lower than the 5.53x and 6.51x industry averages. Furthermore, its 14.80 forward non-GAAP P/E is 31.1% lower than the 21.51x industry average.
Analysts expect its EPS for fiscal 2022 to increase 6.2% year-over-year to $3.23. Its revenue for the quarter ending Dec. 31, 2021, is expected to increase 10.8% year-over-year to $12.80 billion. It surpassed consensus EPS estimates in three of the trailing four quarters. And over the past nine months, the stock has gained 22.3% in price to close yesterday’s trading session at $44.84.
GSK’s POWR Ratings reflect solid prospects. According to our proprietary rating system, it has an overall rating of A, translating to a Strong Buy. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Value and a B grade for Growth, Stability, Sentiment, and Quality. In the Medical – Pharmaceuticals industry, it is ranked #2 of 190 stocks. Click here to see GSK’s rating for Momentum.
Tyson Foods, Inc. (TSN)
TSN in Springdale, Ark., is a food company that produces a range of frozen and refrigerated food products. The company operates in the beef, pork, chicken, and prepared foods segments. Its products and brand portfolio include Tyson, Jimmy Dean, Hillshire Farm, Ball Park, Wright, Aidells, ibp, and State Fair.
On Dec.9, 2021, TSN announced plans to spend more than $1.30 billion to increase its meat plants‘ automation over the next three years. The investment in automation will enable TSN to meet rising product demand while relying less on labor amidst the labor shortage. It will also help in boosting production and reducing the cost of delivery.
Over the last three years, TSN’s dividend payout has grown at a 12.08% CAGR. Its four-year average dividend yield is 2.12%, and its current dividend payout translates to a 2.03% yield. The company began paying dividends in 1989.
TSN’s sales increased 11.7% year-over-year to $12.81 billion for the fourth quarter, ended Oct. 2, 2021. The company’s net income increased 106.7% year-over-year to $1.35 billion. And its EPS came in at $2.30, representing a 35% increase year-over-year.
In terms of forward EV/EBITDA and EV/EBIT, TSN’s respective 7.99x and 10.63x are lower than the 12.76x and 17.27x industry averages. And its 12.48x forward non-GAAP P/E is 36.6% lower than the 19.68x industry average.
For the quarter ending March 31, 2022, TSN’s EPS is expected to increase 11.9% year-over-year to $1.5. Its revenue for fiscal 2022 is expected to increase 6.4% year-over-year to $50.07 billion. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has gained 41.7% in price over the past year to close yesterday’s trading session at $90.77.
TSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B grade for Growth and Sentiment. It is ranked #9 of 84 stocks in the Food Makers industry. To see the additional ratings of TSN for Momentum, Stability, and Quality, click here.
Cardinal Health, Inc. (CAH)
CAH operates as an integrated healthcare services and products company. The Dublin, Ohio-based company provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. It operates in the Pharmaceutical and Medical segments.
On Nov. 16, 2021, CAH announced its collaboration with Zipline, which designs and manufactures small, electric autonomous aircraft. The partnership will help deliver on-demand autonomous aircraft delivery to pharmacies. CAH will use Zipline’s services to replenish retail pharmacies with pharmaceutical and medical products on demand.
Over the last three years, CAH’s dividend payout has grown at a 1.17% CAGR. Its four-year average dividend yield is 3.68%, and its current dividend payout translates to a 3.85% yield. The company began paying dividends in 1994. It is expected to pay a $0.4908 per share quarterly dividend on Jan.15, 2022.
For its fiscal first quarter, ended Sept. 30, 2021, CAH’s total revenue increased 13% year-over-year to $43.96 billion. The company’s pharmaceutical revenue increased 13% year-over-year to $39.82 billion. And its selling, general, and administrative expenses decreased 2% year-over-year to $1.11 billion.
In terms of forward EV/S and P/S, CAH’s 0.10x and 0.08x, respectively, are lower than the 5.53x and 6.51x industry averages. And its 1.48x forward non-GAAP PEG is 22.8% lower than the 1.92x industry average.
Analysts expect CAH’s EPS for the quarter ending March 31, 2022, to increase 11.8% year-over-year to $1.71. Its revenue for fiscal 2022 is expected to increase 9.5% year-over-year to $177.89 billion. Over the past month, the stock has gained 5.2% in price to close yesterday’s trading session at $51.03.
CAH’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to a Buy according to our proprietary rating system. It has an A grade for Value. Within the Medical – Services industry, it is ranked #23 of 88 stocks. Click here to see the additional ratings of CAH for Growth, Momentum, Stability, Sentiment, and Quality.
Penske Automotive Group, Inc. (PAG)
PAG is a diversified transportation services company that operates automotive and commercial truck dealerships. The Bloomfield Hills, Mich.-based company operates through the retail automotive, retail, commercial truck, other, and non-automotive investment segments. It sells new and used motor vehicles and related products and services that comprise vehicle and collision repair services, finance and lease contracts, and third-party insurance products.
On Nov. 16, 2021, PAG announced the acquisition of medium- and heavy-duty commercial trucks retailer McCoy Freightliner. The acquisition is expected to add approximately $200 million in annualized revenue by further scaling the company’s Premier Truck Group subsidiary.
Over the last three years, PAG’s dividend payout has grown at a 7.82% CAGR. Its four-year average dividend yield is 2.64%, and its current dividend payout translates to a 1.67% yield. The company began paying dividends in 2003.
PAG’s total revenue for its fiscal third quarter, ended Sept.30, 2021, increased 8.8% year-over-year to $6.49 billion. The company’s net income increased 43.9% year-over-year to $356.30 million. Also, its income from continuing operations increased 43.8% year-over-year to $356 million.
In terms of forward EV/EBITDA and EV/EBIT, PAG’s respective 7.92x and 10.72x are lower than the10.66x and 13.78x industry averages. Furthermore, its 7.14x forward non-GAAP P/E is 49.8% lower than the 14.23x industry average.
Analysts expect PAG’s EPS and revenue for its fiscal 2021 to increase 120.3% and 24.9%, respectively, year-over-year to $14.85 and $25.54 billion. It surpassed the Street’s EPS estimates in the trailing four quarters. And over the past year, the stock has gained 71.2% in price to close yesterday’s trading session at $106.84.
PAG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B grade for Sentiment and Quality. It is ranked #4 of 26 stocks in the B-rated Auto Dealers & Rentals industry. To see the additional ratings of PAG for Growth, Momentum, and Stability, click here.
GSK shares were trading at $44.86 per share on Tuesday morning, up $0.02 (+0.04%). Year-to-date, GSK has gained 1.72%, versus a -2.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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