The disappointing performance of the stock market has a silver lining, which is that dividend yields are rising across the market. Many stocks that had low dividend yields due to their soaring stock prices have seen their dividend yields elevate. Even quality companies with stable business models are seeing their dividend yields reach multi-year highs.
The following three large-cap stocks have strong business models, leadership positions in their industry, and have high dividend yields above 4%.
Intel (INTC) is the largest manufacturer of microprocessors for personal computers, shipping about 85% of the world’s microprocessors. Intel also manufactures products like servers and storage devices that are used in cloud computing. Intel employs more than 120,000 people worldwide and has a current market capitalization of $149 billion. The company generates about $67 billion in annual sales.
On July 28, Intel reported second-quarter results on for the period ending June 30, 2022. Revenue declined 22% to $15.3 billion and was $2.6 billion below estimates. On an adjusted basis, revenue fell 17%. Adjusted earnings per share of $0.29 compared to $1.24 in the prior year and was $0.41 less than expected.
Revenue for the PC-Centric business decreased 25% to $7.7 billion for the quarter, primarily due to component shortages as well as the modem ramp down. Datacenter and AI Group was lower by 16% to $4.6 billion. Network and Edge Group grew 11% to $2.3 billion due to the ongoing recovery from Covid-19. Mobileye and Accelerated Computing Systems and Graphics Group grew 41% and 5%, respectively. Intel Foundry Services fell 54%.
Intel now expects to see revenue of $65 billion to $68 billion for the year, below consensus of $74.4 billion. The company is now projected to earn $2.60 per share in 2022, down from $4.16 and $3.79 previously.
Even though Intel’s profits are down this year, the company generates more than enough cash flow to continue to raise its dividend. On January 26, 2022, Intel increased its dividend 5%. Intel generated $11.3 billion in free cash flow in 2021 and returned $8 billion to shareholders last year. While Intel paused its dividend growth in 2014, the company has increased it every year since. Overall, the dividend has a CAGR of 5.3% since 2012. The shares currently yield 4.8%.
3M (MMM) sells more than 60,000 products that are used every day in homes, hospitals, office buildings and schools around the world. It has about 95,000 employees and serves customers in more than 200 countries.
On February 8, 3M announced it was raising its quarterly dividend 0.7% to $1.49, extending the company’s dividend growth streak to 64 consecutive years.
3M is facing several lawsuits, including nearly 300,000 claims that its earplugs used by U.S. combat troops and produced by a subsidiary were defective. On July 26, 3M announced that Aearo Technologies had filed for bankruptcy as it looks to conclude lawsuits related to its combat ear plugs.
Meanwhile, the company continues to report strong profitability. In the second quarter, revenue decreased 2.8% to $8.7 billion, but was in line with expectations. Adjusted EPS of $2.48 compared to $2.59 in the prior year, but was $0.04 above estimates. Organic growth for the quarter was 1% as a stronger U.S. dollar offset gains. The company also announced that it would be spinning off its Health Care segment into a standalone entity, which would have had $8.6 billion of revenue in 2021. The transaction is expected to close by the end of 2023.
3M provided an updated outlook for 2022, with the company now expecting adjusted EPS of $10.30 to $10.80 for the year. With an annualized dividend payout of $5.96 per share, 3M’s dividend is sufficiently covered by EPS. 3M is not recession proof, but the company has proven itself to be resilient during the difficult times in the economic cycle. While dividend growth has outpaced earnings growth in recent years, 3M’s dividend track record is virtually second to none. When the next recession occurs, it is likely that growth will slow, though we don’t feel the dividend is in any danger of being cut.
The shares currently yield 4.9%.
Kraft Heinz (KHC) is a processed food and beverages company which owns a product portfolio that includes food products such as condiments, sauces, cheese & dairy, frozen & chilled meals, and infant diet & nutrition. The company was created in 2015 in a merger between Kraft Food Group and H. J. Heinz Company, orchestrated by Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) and 3G Capital.
Kraft Heinz reported its second-quarter earnings results on July 27. The company’s revenues totaled $6.6 billion during the quarter, which was down 1% compared to what it generated during the previous year’s period. This was still slightly better than what the analyst community had expected.
Kraft Heinz’ organic sales were up by 10%. Organic sales growth was possible thanks to price increases, whereas volumes were down slightly. Forex headwinds and M&A were responsible for reported revenue being down.
The company generated EPS of $0.70 during the second quarter, which slightly beat the consensus estimate. EPS were down 10% versus the previous year’s quarter, being impacted by a difficult comparison and adverse currency rate movements. Kraft Heinz’ management stated that they see organic net sales rising at a high-single digits pace in 2022, and is forecasting EBITDA to come in between $5.8 billion and $6.0 billion during the current year.
Kraft Heinz’ brands are strong and recognized by most consumers, and demand for food is not cyclical or dependent on economic conditions. The company therefore should be able to remain profitable in economic downturns, as do most consumer staples companies. Kraft Heinz’ brands function as a competitive advantage.
The company does not have a long dividend history. The dividend looks sustainable at the current level, with a payout ratio of 60%.
The shares currently yield 4.3%.
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