Inflation reached a record high of 9.1% in June, and traders are betting over a full-point federal rate hike in July. The declining confidence has led the S&P 500 to shed 19.6% year-to-date. Investors are taking up buying the dip strategy to ensure long-term returns.
However, investing in dividend stocks with a strong dividend paying history could ensure a stable income stream as investors try to strengthen their portfolios amid looming recession fears. Michael Clarfeld, portfolio manager at ClearBridge Investments, recently said, “In a world where inflation is eroding purchasing power, dividends are a way to stay ahead.”
Thus, we think it could be wise to invest in quality dividend stocks Packaging Corporation of America (PKG), Lockheed Martin Corporation (LMT), and Texas Instruments Incorporated (TXN) instead of buying the market dip.
Packaging Corporation of America (PKG)
PKG manufactures and sells containerboard and corrugated packaging products in the United States. The company operates through Packaging and Paper segments. It operates eight mills and 90 corrugated product plants and related facilities.
On April 25, 2022, Mark W. Kowlzan, Chairman and CEO, said, “We expect demand in our Packaging segment to remain very strong, and we will continue implementing the previously announced price increases in both our Packaging and Paper segments.”
PKG has paid dividends for 18 consecutive years. Over the last three years, PKG’s dividend payouts have grown at a 10.4% CAGR. While PKG’s four-year average dividend yield is 2.92%, its current dividend translates to a 3.68% yield.
For its first quarter ended March 31, 2022, PKG’s net sales increased 18.2% year-over-year to $2.14 billion. Its net income came in at $254.20 million, up 52.7% year-over-year, while its EPS came in at $2.70, up 54.3% year-over-year.
Analysts expect PKG’s revenue to increase 11.6% year-over-year to $8.63 billion in 2022. Its EPS is estimated to grow 9.7% per annum for the next five years. It surpassed EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained marginally to close the last trading session at $134.29.
PKG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PKG has a B grade for Stability and Quality. Within the A-rated Industrial – Packaging industry, it is ranked #9 out of 21 stocks. Click here to see the additional POWR Rating for Growth, Value, Momentum, and Sentiment for PKG.
Lockheed Martin Corporation (LMT)
Security and aerospace company LMT researches, designs, develops, manufactures, integrates, and sustains technology systems, products, and services worldwide. It operates through four segments: Aeronautics; Missiles and Fire Control; Rotary and Mission Systems; and Space.
On June 27, 2022, LMT announced that it had purchased group annuity contracts from Athene Holding Ltd. (ATH), a leading retirement services company. Moreover, the United States government and Sikorsky, an LMT company, signed a five-year contract for a baseline of 120 H-60M Black Hawk helicopters. These contracts should benefit the company.
LMT has paid dividends for 26 consecutive years. Over the last three years, LMT’s dividend payouts have grown at an 8.6% CAGR. While LMT’s four-year average dividend yield is 2.60%, its current dividend translates to a 2.81% yield.
For the first quarter ended March 27, 2022, LMT’s Aeronautics segment sales increased marginally year-over-year to $6.40 billion. Its Space segment operating profit increased 7.9% year-over-year to $245 million. Moreover, its total business segment operating margin came in at 11.1% compared to 10.8% in the year-ago period.
LMT’s revenue is expected to be $67.86 billion in 2023, representing a 2.9% year-over-year rise. In addition, the company’s EPS is expected to increase 8.2% per annum for the next five years. It surpassed EPS estimates in three of the trailing four quarters. The stock has gained 9% year-to-date to close the last trading session at $387.28.
It’s no surprise that LMT has an overall B rating, equating to a Buy in our proprietary rating system. In addition, it has a B grade for Value, Stability, and Quality.
LMT is ranked #15 out of 77 stocks in the Air/Defense Services industry. Click here to see LMT’s Growth, Momentum, and Sentiment ratings.
Texas Instruments Incorporated (TXN)
TXN designs, manufactures, and sells semiconductors to electronics designers and manufacturers worldwide. It operates in two segments, Analog and Embedded Processing. It markets and sells its semiconductor products through direct sales and distributors, as well as through its website.
On June 21, 2022, TXN expanded its connectivity portfolio with a new family of wireless microcontrollers, enabling high-quality Bluetooth® Low Energy at lower prices than the industry. This advanced yet affordable product is expected to enhance the customer experience.
TXN has paid dividends for 32 consecutive years. Over the last three years, TXN’s dividend payouts have grown at a 15.1% CAGR. While TXN’s four-year average dividend yield is 2.49%, its current dividend translates to a 2.87% yield.
TXN’s revenue came in at $4.91 billion for the first quarter ended March 31, 2022, up 14.4% year-over-year. Its net income came in at $2.20 billion, up 25.6% year-over-year. Also, its EPS came in at $2.35, up 25.7% year-over-year.
TXN’s revenue is expected to increase 5.2% year-over-year to $19.30 billion in 2022. Its EPS is estimated to grow 10% per annum for the next five years. Also, it surpassed EPS estimates in each of the trailing four quarters. Over the past month, TXN has gained 6.3% to close the last trading session at $159.67.
TXN has an overall B rating equating to a Buy in our POWR Ratings system. It has an A grade for Quality.
TXN is ranked #33 out of 95 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to check additional TXN ratings (Growth, Value, Momentum, Stability, and Sentiment).
PKG shares were trading at $138.56 per share on Tuesday afternoon, up $4.27 (+3.18%). Year-to-date, PKG has gained 3.35%, versus a -17.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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