What good is a big dividend if the stock keeps falling? So analysts see ways to score super-size dividends on some S&P 500 stocks bucking the market's sell-off.
Thirteen stocks in the S&P 500 are sidestepping the rough market this year, including energy plays like Phillips 66, communications services firm Omnicom and health care play Organon, all yield more than 3%, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith. But what's more, analysts think they'll rally from here until the end of the year by 7% or more even after rising from the S&P 500's sell-off since the Jan. 3 high.
"Dividend growth helps investors combat inflation as dividend payments from a high-quality portfolio can grow with or in excess of inflation," said Austin Graff, portfolio manager for the TrueShares Low Volatility Equity Income ETF.
Perils Of Chasing S&P 500 Yield
Buying high-yield stocks, while popular in this market, is increasingly dangerous. With inflation on the rise, global tensions heating up and higher interest rates likely on the way, many dividend stocks are at risk.
The Vanguard High Dividend Yield ETF serves as a powerful example. Yes, the ETF yields a solid 2.84%. But already this year, the price of the ETF is down 3.3%. Sure, that's better than the S&P 500's 11.6% drop in 2022 so far. But — the fact is — the entire year's dividend is erased and then some by the price drop. Plus you're still exposed to additional drops in stock prices.
And rising S&P 500 dividends aren't protecting you much either. The First Trust Rising Dividend ETF yields 1.12%. But that's not much comfort when the ETF is down more than 9% this year and off nearly 10% from the S&P 500's high.
So do analysts see any upside in high dividend stocks dodging the year's sell off? Yes.
Big Dividend And Up In A Down Market?
Analysts have a few favorite S&P 500 high dividend payers: Phillips 66 is one of them. And it's easy to see why.
Just look past the 4.53% dividend yield for a moment. Shares of the energy firm are up more than 6% from the S&P 500's Jan. 3 high and nearly 12% this year to 80.77. Additionally, the company's profit is seen surging more than 35% this year to $7.72 a share. Phillips 66, like many energy firms, is poised to gain a massive windfall this year from rising oil prices.
But most importantly, analysts still think Phillips 66 has more than 20% to gain over the next 12 months, to 98.88. That's an implied gain no other high-yield S&P 500 stock rallying in the face of the sell-off can match.
Hot Dividend Outside S&P 500 Energy
It's not just an energy stock play, though. Analysts think ad giant Omnicom Group is good for a 23% rise in the next 12 months. And that's despite gaining more than 3% since the S&P 500 started falling after Jan. 3. Such resilience is only an added boost to the company's 3.64% yield. Omnicom isn't a fast profit grower, but a steady one. Profit is seen rising 5% this year, 5.6% in 2023 and 18% in 2024.
And in health care, the diversified spin-off from Merck, Organon, is up more than 15% from the S&P 500's high this year. It's rallying almost as much from the highs as the S&P 500 is falling. An yet, analysts are still calling for more than 13% in upside from here. And on top of all that? A dividend yield of 3.11%.
To be sure, dividends aren't forever. Analysts aren't infallible. Even most S&P 500 stocks would eventually succumb to selling if there's a recession. But for now, analysts think they've found the Telfon-coated dividend-payers in the current sell-off.
High-Dividend Winners Analysts Love
All yield 7% or more, gained from the Jan. 3 S&P 500 high and are seen rising 7% or more
| Company | Symbol | Stock % ch. from S&P 500 high | Yield | Sector | Implied Upside* |
|---|---|---|---|---|---|
| Omnicom Group | 3.2% | 3.64% | Communication Services | 23.0% | |
| Phillips 66 | 6.6 | 4.53 | Energy | 22.4 | |
| Merck | 1.8 | 3.54 | Health Care | 17.2 | |
| Organon | 15.0 | 3.11 | Health Care | 13.4 | |
| Verizon Communications | 1.1 | 4.81 | Communication Services | 12.5 | |
| Coterra Energy | 31.0 | 3.84 | Energy | 10.8 | |
| Kraft Heinz | 3.4 | 4.26 | Consumer Staples | 10.7 | |
| CME Group | 0.2 | 3.18 | Financials | 10.4 | |
| Molson Coors Beverage | 7.3 | 3.02 | Consumer Staples | 8.1 | |
| Amgen | 1.0 | 3.42 | Health Care | 7.7 | |
| Dow | 7.1 | 4.62 | Materials | 7.5 | |
| Bristol Myers Squibb | 11.3 | 3.16 | Health Care | 7.2 | |
| LyondellBasell Industries | 11.0 | 4.53 | Materials | 7.2 |
