This year, inflation reached its highest level in 40 years, prompting the Fed to hike interest rates aggressively. The Fed’s hawkish stance is finally bearing results as inflation cooled considerably in the last two months.
Fed Chair Jerome Powell said, “Inflation data received so far for October, and November show a welcome reduction in the monthly pace of price increases. But it will take substantially more evidence to have confidence that inflation is on a sustained downward path.”
The Fed kept its word of slowing down the pace of rate hikes as it announced a 50-basis-point rate hike last week. However, officials have indicated the central bank’s plans to keep raising rates through next year, with no reductions until 2024. They expect the ‘terminal rate’ at 5.1%. This has sparked recession fears.
Despite the macroeconomic uncertainty, investing in fundamentally strong and dividend paying-stocks Merck & Co., Inc. (MRK), PepsiCo, Inc. (PEP), and Bristol-Myers Squibb Company (BMY) could be wise for investors looking to create wealth in the long run.
Merck & Co., Inc. (MRK)
MRK is a global healthcare company that offers solutions through its prescription medicines, vaccines, biological therapies, and animal health products. The company operates in the Pharmaceutical and Animal Health segments.
On September 22, 2022, Merck Animal Health announced that it had signed a definitive agreement to acquire Vence. Merck Animal Health President Rick DeLuca said, “The acquisition of Vence will broaden our portfolio with complementary products and technologies to advance animal health and well-being as well as outcomes for our customers.”
MRK’s annual dividend of $2.92 yields 2.62% on the current share price. The company’s dividend payouts have increased at a 9.1% CAGR over the past three years and a 9.2% CAGR over the past five years. Its four-year average yield came in at 2.95%.
MRK’s sales increased 13.7% year-over-year to $14.96 billion for the third quarter ended September 30, 2022. The company’s non-GAAP net income rose 3.9% year-over-year to $4.70 billion. Its non-GAAP EPS came in at $1.85, representing an increase of 3.9% year-over-year.
Analysts expect MRK’s revenue for the quarter ending December 31, 2022, to increase 0.9% year-over-year to $13.64 billion. Its EPS for fiscal 2022 is expected to increase 22.7% year-over-year to $7.38. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 46.1% to close the last trading session at $111.24.
MRK’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Sentiment, and Quality. It is ranked #10 out of 159 stocks in the Medical – Pharmaceuticals industry. Click here to see other ratings of MRK for Growth, Momentum, and Stability.
PepsiCo, Inc. (PEP)
PEP is a global food and beverage company. It operates in the Frito-Lay North America, Quaker Foods North America, PepsiCo Beverages North America, Europe, and AMESA segments.
PEP’s annual dividend of $4.60 yields 2.54% on the current share price. The company’s dividend payouts have increased at a 6.1% CAGR over the past three years and a 7.4% CAGR over the past five years. Its four-year average yield came in at 2.79%.
PEP’s net revenue increased 8.8% year-over-year to $21.97 billion for the third quarter ended September 30, 2022. The company’s non-GAAP net income increased 10% year-over-year to $2.73 billion. In addition, its non-GAAP EPS came in at $1.97, representing an increase of 10% year-over-year. Also, its non-GAAP operating profit increased 10.9% year-over-year to $3.59 billion.
For the quarter ending December 31, 2022, PEP’s EPS and revenue are expected to increase 7.2% and 5.3% year-over-year to $1.64 and $26.59 billion, respectively. Its earnings surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 11.8% to close the last trading session at $181.09.
PEP’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Stability. Within the A-rated Beverages industry, it is ranked #9 out of 33 stocks. To see the other ratings of PEP for Value, Momentum, and Sentiment, click here.
Bristol-Myers Squibb Company (BMY)
BMY develops, licenses, manufactures and markets biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic, neuroscience, and COVID-19.
On August 17, 2022, BMY announced the completion of the acquisition of Turning Point Therapeutics, Inc. BMY’s Executive VP of Strategy & Business Development, Elizabeth Mily, said, “Turning Point has distinguished itself in the field of precision oncology, and this acquisition will further strengthen our leading oncology franchise.”
BMY’s annual dividend of $2.28 yields 3.09% on the current share price. The company’s dividend payouts have increased at a 9.6% CAGR over the past three years and a 6.7% CAGR over the past five years. Its four-year average yield came in at 3.03%.
BMY’s total in-line products and new product portfolio revenue increased 8% year-over-year to $8.62 billion for the third quarter ended September 30, 2022. The company’s non-GAAP earnings before income taxes increased 0.9% year-over-year to $5.13 billion. Its non-GAAP EPS attributable to BMY increased 3.1% year-over-year to $1.99. Also, its total expenses increased 4.8% year-over-year to $9 billion.
For fiscal 2022, BMY’s EPS is expected to increase 1.4% year-over-year to $7.62. Its revenue for the quarter ending June 30, 2023, is expected to increase 1% year-over-year to $12 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 18.9% to close the last trading session at $73.83.
BMY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It is ranked #3 in the Medical - Pharmaceuticals industry. It has an A grade for Value and a B for Stability, Sentiment, and Quality. To see the other ratings of BMY for Growth and Momentum, click here.
MRK shares were unchanged in premarket trading Friday. Year-to-date, MRK has gained 49.81%, versus a -18.54% 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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