Jhe U.S. stock market has had a frantic run so far in 2022. Despite a rising March, the S&P500, Nasdaq Compoundand Dow Jones Industrial Average had its worst quarter in the first quarter of 2022 since the first quarter of 2020.
Investors looking for quality companies that can survive an extended sideways market have come to the right place. Stanley Black & Decker (NYSE: SWK), Sherwin-Williams (NYSE:SHW)and Genuine Parts Company (NYSE: GPC) are three dividend aristocrats just waiting to be bought in April. A Dividend Aristocrat is a component of the S&P 500 that has paid and increased its dividend for at least 25 consecutive years. Here’s what makes every business worthwhile.
Stanley Black & Decker could be a great value opportunity
Lee Samaha (Stanley Black & Decker): Unfortunately, the investment case for the maker of tools, storage and industrial products has taken a hit in 2022.
It was supposed to be the year the company enjoyed a recovery in margins as cost and supply chain pressures eased throughout the year. In addition, a recovery in automotive production was expected to generate upside potential for its industrial products segment. Meanwhile, the company’s integration of lawn and garden equipment company MTD was seen as a game-changing opportunity to boost profits by increasing the company’s revenue and profit margin as part of Stanley Black & Decker.
It’s a compelling investment case, but unfortunately the conflict in Ukraine and its impact on commodity costs comes at precisely the wrong time. As investors eagerly awaited the upside potential of lower costs, they are once again eyeing rising cost pressures. Everything points to pressure on Stanley’s outlook for 2022, and investors shouldn’t be surprised if management lowers its full-year estimates when it reports results on April 28.
That said, the long-term case for the stock remains strong, and any further significant selling should cause investors to take a serious look at the stock. The acquisition of MTD makes sense; raw material cost inflation will not increase indefinitely; and Stanley’s margins will surely increase in the future.
Comb Your Portfolio With Passive Income
Daniel Foelber (Sherwin-Williams): Sherwin-Williams’ stock price hasn’t exactly had a great year so far in 2022. The stock hit an all-time intraday high on Dec. 30 at $354.15. And since then, it has dropped by 30%. The sale appears to have more to do with where Sherwin-Williams’ business might go than where it has gone.
For context, Sherwin-Williams was one of the few industrial companies to perform very well since the start of the pandemic. Despite a slowdown in its commercial and industrial paint and coatings segments, the company has benefited from home DIY projects, as well as a booming housing market that is driving existing home renovations and demand for paint for new buildings. However, the company’s consumer brands segment faced tough mixes in 2021, which contributed to lower year-over-year net profit despite rising revenue.
More headwinds are building in 2022 as there are strong signals that the housing market is about to cool down. House prices are at an all-time high and 30-year mortgage interest rates are now at their highest level in four years – two factors that are casting a damp blanket over housing demand.
It’s more of a problem for companies like Home deposit and Lowe’s than for Sherwin-Williams. But if the housing market cools, it will undoubtedly be a net negative for Sherwin-Williams’ bottom line.
That being said, Sherwin-Williams is a diverse company that does not depend on a single end market for success. This resilience is demonstrated in the long-term performance of the business. Over the past 20 years, Sherwin-Williams has never reported an annual loss.
His income slowed in the years following the housing crisis. But that hasn’t stopped the company from paying its dividend, let alone resuming its torrid long-term rate of growth in the years since.
Sherwin-Williams may not have the highest yield of dividend aristocrats. But it’s an industry-leading company with a proven track record throughout economic expansions and contractions. For this reason, Sherwin-Williams now looks like a great buy.
A noble choice for generating passive income
Scott Levine (original parts): Looking for a quality dividend stock to park in your portfolio? For 65 years, Genuine Parts has been returning money to shareholders, making it one of the oldest dividend aristocrats. Investors, who have overshot the stock in the past and don’t count it among their holdings, are in luck right now. Offering investors a forward dividend yield of 2.8%, shares of Genuine Parts are currently on sale. The stock trades at 20.2 times earnings, which is a discount to its five-year average multiple of 74.9 and the earnings multiple of the S&P 500: 25.8.
Genuine Parts is coming off a strong performance in 2021 – a year in which it grew revenue 14.1% year-over-year and set a company record for earnings per share (EPS). ) at $6.23. According to the company, the way forward will be one of continued growth. Management expects sales growth of 9% to 11%, driven largely by an expected 20% to 22% increase in revenue from the industrial segment, which specializes in mechanical and hydraulic transmission equipment, material handling components and related parts and supplies. Ultimately, management expects EPS of $7.45 to $7.60. If the company hits the midpoint of that forecast, that will represent 30% year-over-year growth. But it’s not just the income statement where management sees growth. Free cash flow is expected to increase from $1 billion in 2021 to approximately $1.3 billion in 2022.
Cautious investors who might be worried about the company’s ability to sustain its dividend need not worry too much. Excluding 2020, when it recorded a net loss, Genuine Parts averaged a payout ratio of 54%. The company’s dividend is also well covered by free cash flow. In 2021, for example, Genuine Parts generated free cash flow of $9.65 per share and paid dividends of $3.26 per share.
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Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in the stocks mentioned. Scott Levine has no position in the stocks mentioned. The Motley Fool owns and recommends Home Depot. The Motley Fool recommends Lowe’s and Sherwin-Williams. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.