Are you looking for more investment income in 2023? It wouldn't be a bad strategic shift. Higher interest rates disproportionally work against growth stocks, putting a premium on value stocks and the cash many of them generate for shareholders.
With that as the backdrop, here's a closer look at three great dividend stocks you may want to step into before January comes to a close. In no particular order...
1. Conagra Brands
It's been a tricky past few months for food companies like Conagra Brands(NYSE: CAG). Not only are supply chains still a bit disrupted, but inflation remains strong as well, putting the industry's pricing power to the test.
Conagra, however, is better positioned than most of its peers for what appears will be the norm in 2023.
Burdened by continued high prices with a potential recession on the horizon, many consumers are buying fewer fresh foods and purchasing more frozen (cheaper) foods. It's a shift Conagra's CEO Sean Connolly saw coming over a year ago, prompting several strategic changes then for the marketplace's situation now. Healthy Choice pizzas, Birds Eye Quick Roasters, Bertolli Italian meals, and Marie Callender's combo meals are all frozen product lines expanded in the middle of last year. That's a key reason why the company's Refrigerated and Frozen arm saw revenue growth of 10.5% during the quarter ending in November when many other food companies were hitting a wall.
Timely innovation isn't the only reason to take a closer look at Conagra and its current dividend yield of 3.4%, though. The company also sees a light at the end of the inflationary tunnel. While its rivals aren't all saying the same, Connolly doesn't see more price hikes being necessary from here.
If the company can do what many of its competitors simply can't just yet, look for Conagra's leading sales growth to make the stock one of the food business' better performers in 2023.
3M(NYSE: MMM) has been a tough name to own for a while now. The stock's been in a slump since 2018, in fact, dogged by a combination of waning demand, rising costs, geopolitical tension, and most recently, likely litigation over defective ear plugs. Last month, a U.S. District Court decided 3M couldn't sidestep a class action lawsuit by steering the subsidiary company that made the alleged faulty protective earwear into bankruptcy. The stock remains near multiyear lows reached this past October.
There are three arguments for buying a piece of 3M while the dividend yield's an above-average 4.8%, however.
The first of these reasons is, the worst-case scenario of its brewing litigation is already priced into the stock. Shares are priced at less than 12 times the company's past and projected per-share earnings. While earnings aren't apt to grow in a major way this year, they are stabilizing.
Second, they're stabilizing for a specific reason. Although it's been a multiyear project, the top-down overhaul 3M took on back in 2018 is starting to bear fruit. This overhaul prioritized "portfolio, innovation, transformation, and people and culture," leading to actions like the exit of certain food safety and drug delivery product lines and the acquisition of wound care outfit Acelity.
The third and final reason to take a fresh look at 3M as a dividend-paying name now is also perhaps the strongest reason of all. That's the U.S. dollar. After rising for years and making its products increasingly unaffordable or decreasingly profitable overseas -- where the company does about half of its business -- the greenback's value is starting to peel back from multiyear highs hit late last year. As long as domestic inflation remains relatively high and the U.S. economy is bumping into headwinds, look for downward pressure on the U.S. dollar to ultimately help 3M's important foreign operations.
3. International Paper
Finally, put International Paper(NYSE: IP) on your prospective dividend stock buy list; you'd be plugging in while the stock's paying out 5.3%.
It's admittedly a tough name to get excited about. The paper and packaging industry is not only highly subject to cost and pricing fluctuations, but it is brutally competitive too. (The company's got the inconsistent revenue and earnings to prove it.) This year's projected top- and bottom-line dips underscore this reality in addition to undermining the bullish argument. Never even mind its perpetually tepid growth.
What's largely being overlooked here, however, is how reliably cyclical the ups and downs of the paper-pricing cycle are.
The world will never stop needing paper and packaging. The industry's most important players -- including International Paper -- just don't do a particularly great job of maintaining supply relative to demand. That's not necessarily a bad thing, though. This ebb and flow has handsomely rewarded investors willing to buy these stocks following their steep sell-offs like the one IP experienced last year.
In this vein, market research outfit Technavio estimates the global printing paper market will grow at an annual pace of around 2% through 2031, mirroring expectations from IMARC Group. The cardboard market should grow at a better pace, but only slightly. Even so, it's a tailwind IP can work with to support the continued payment of its dividend.
That's a readily affordable dividend, by the way, that's been paid in every quarter going back to the 1990s.
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