The economic landscape in 2024 is pretty challenging, with consumer sentiment recently hitting a seven-month low. Morgan Stanley's Mike Wilson says the unusually wide gap between current economic conditions and future expectations is what's really notable - and the analyst says the gulf in this metric suggests that "we are dealing with an unbalanced economy of 'haves' and 'have nots,'" according to a recent note.
Even though inflation is cooling down, high prices are still a buzzkill for consumers, dampening their expectations for real income gains over the next five years. This strain is also visible in the stock market, where the narrow breadth and underperformance of small-cap stocks are a point of concern for many. The S&P 500 Index ($SPX) has gained 14.7% so far this year, but the equal-weighted version of the index is up just 4.4%, and the Russell 2000 Index (RUT) is slightly negative on the year.
Against this backdrop, a slim majority of fed funds futures players are looking for that first rate cut to hit markets in September, according the CME's FedWatch Tool. In this late-cycle economy, with strong fiscal policy and high interest rates, Wilson's team of analysts say that investors are turning to large-cap growth stocks, which tend to perform well when the Fed starts cutting rates.
Among Morgan Stanley's top picks for this environment are the three rock-solid dividend stocks below. These companies offer reliable dividend yields, and have a long history of stability and growth, making them ideal choices for navigating just about any business cycle effectively.
#1. Coca-Cola Company: A Refreshing Dividend Giant
Coca-Cola Company (KO), the global beverage giant, is renowned for its iconic brands like Coca-Cola, Sprite, and Fanta. The Warren Buffett stock is one of the oldest dividend payers on Wall Street, having distributed dividends annually since 1920.
Notably, Coke has increased its dividend for an impressive 61 consecutive years, earning it the prestigious "Dividend King" title reserved for companies that have raised dividends for at least 50 straight years. Currently, KO's dividend yield stands at 3.10%, with a dividend payout of $1.94 per share.
KO is up 5.5% on a YTD basis, and trades not far from its 52-week high, set earlier this month.
Financially, Coca-Cola reported strong Q1 2024 earnings, with EPS of $0.72 surpassing analysts' expectations of $0.70, and revenue of $11.3 billion exceeding estimates of $11.02 billion. This performance was driven by increased demand for beverages like Fanta and Fairlife, as well as higher pricing.
Looking ahead, Coke is expected to report Q2 2024 revenues of $11.76 billion, with EPS for Q2 estimated at $0.80. For fiscal 2024, Wall Street's consensus EPS estimate is $2.82, up 4.8% annually. Priced at 22x forward earnings, KO is valued at a roughly 10% discount to its historical earnings premiums.
Strategically, Coca-Cola just partnered with Siemens Industry Automation to streamline production processes, aiming to boost capacity and reduce maintenance costs.
With a mean target price of $66.53, analysts are forecasting a nearly 7% upside. Out of 19 analysts covering the stock, 13 advocate a “strong buy,” while one suggests a “moderate buy,” and five recommend a “hold.”
#2. Colgate-Palmolive Company: A Clean Sweep in Dividend Stability
Colgate-Palmolive (CL) is a global consumer products powerhouse, offering a wide range of essentials like toothpaste, soaps, and pet food under well-known brands such as Colgate, Palmolive, Softsoap, and Irish Spring.
Founded way back in 1806 and based in New York, this company has been making investors smile for over a century. Colgate-Palmolive has been paying dividends since 1895 and has boosted its payouts for an impressive 60 years straight, earning it a spot alongside Coke among the elite "Dividend Kings." CL stock offers a solid 2.06% dividend yield, based on its quarterly dividend payout of $0.50 per share.
Unlike some other dividend stocks, CL has been on a roll with a stellar YTD performance. The stock is beating the broader market with a gain of 21.7% so far this year.
And Colgate-Palmolive knocked it out of the park in Q1 of 2024, too. The company's net sales jumped 6.2% year-over-year to $5.07 billion, beating analysts' expectations. Organic sales skyrocketed by 9.8%, thanks to strong pricing and volume growth across all its businesses.
EPS for Q1 rose to $0.83, a massive 84% increase from the same time last year, and adjusted EPS of $0.86 easily topped Wall Street's forecast.
Looking ahead, analysts are projecting EPS of $0.87 for Q2 and $3.53 for fiscal 2024, indicating expected growth of more than 9% for the full year. Revenue is expected to rise 3.9% for the full year to $20.22 billion.
After its breakout rally, Colgate-Palmolive is trading nearly flat with Wall Street's mean target price of $97.29. The Street-high price target of $105 implies upside potential of 8.3%.
Out of the 18 analysts covering the stock, a resounding 12 have issued a "strong buy" recommendation, while 2 have a "moderate buy" rating, and the remaining 4 analysts maintain a “hold.”
#3. Verizon Communications: Connecting Investors with Reliable Dividends
Verizon Communications (VZ) is a global powerhouse in the world of communications, technology, information, and entertainment. The company has been rewarding its shareholders with consistent dividends since way back in 1984, and it has consistently increased its dividend for 20 years straight. VZ's annualized dividend payout totals $2.66 per share, yielding an impressive 6.64%.
Over the past 52 weeks, Verizon stock has held its own, gaining 12.4% in this time frame. On a YTD basis, the stock is up 6.7%.
Verizon reported its Q1 2024 earnings on April 22, and EPS for the quarter came in at $1.15, beating the consensus estimate of $1.12. Revenue for the quarter was $33.0 billion, just barely missing the estimate of $33.23 billion.
But the real highlight was the strong wireless service revenue growth of 3.3% year-over-year, thanks to pricing actions and growth in the fixed wireless subscriber base. Verizon also added an impressive 389,000 total broadband subscribers in Q1 2024, including 151,000 fixed wireless net additions.
For the full fiscal year 2024, Wall Street expects Verizon's EPS to dip slightly to $4.59 per share, with revenue holding steady around $135 billion. Priced at 8.75x forward earnings, the stock looks cheap at current levels.
On the news front, the company's public sector division recently scored a massive 10-year, $495 million contract from the U.S. Navy to keep the Navy's first responder network up and running. On top of that, Verizon has expanded its partnership with TelevisaUnivision just in time for Copa America 2024, boosting its brand presence in the Spanish-language media market.
Analysts have set an average target price of $44.49 for Verizon, indicating a potential upside of around 10.6%. Out of 21 analysts, 6 are strongly recommending a "strong buy," 3 suggest a "moderate buy," and 12 advise a “hold.”
Conclusion
In a market that's anything but predictable, Coca-Cola, Colgate-Palmolive, and Verizon Communications all offer a refreshing dose of stability and growth for investors' portfolios. These companies not only provide solid dividend yields, but also have a proven track record of weathering economic storms. If you're looking for reliable investments to navigate the current economic landscape, these three dividend stocks are definitely worth considering.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
