Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

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Seven dividend investments to purchase for profiting despite 2022 pitfalls should power ahead.

The seven dividend investments to purchase for profiting despite 2022 pitfalls offer high quality, inflation-protected dividend yield, value rather than growth, free cash flow (FCF) generation and more. Other reasons that led to their recommendation include fund positioning, a pension fund chairman’s input, 2022 earnings outlook versus consensus forecasts and other catalysts.

In addition, these seven dividend investments to purchase benefit more from inflation, rising interest rates, heightened gross domestic product (GDP), increased oil prices and wage growth, compared to an equal-weighted 11 sector portfolio. Six of the seven dividend investments to purchase for profiting despite 2022 pitfalls were picked by BoA Global Research, which gave analysis for each of its choices.

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The Fed’s Jan. 5 release of the minutes from its December Federal Open Market Committee (FOMC) meeting showed an increasingly aggressive plan to wind down quantitative easing (QE), raise the Fed Funds Rate and reduce the $9 trillion in debt on the Fed’s balance sheet, Bryan Perry wrote to his Cash Machine newsletter readers. The news impaired short-term investor sentiment and triggered heavy selling in the market’s favorite and dominant growth stocks in following few days, he added.

The only sectors holding up under the stress of broad market downside pressure have been energy, financials, consumer staples and utilities, Perry opined.

Paul Dykewicz interviews Bryan Perry, who heads the Cash Machine newsletter, as well as the Premium Income, Quick Income Trader, Breakout Profits Alert and Hi-Tech Trader trading services.

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Exxon Mobil Is One of Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

Exxon Mobil Corp. (NYSE: XOM) shares traded above $70 on Tuesday, Jan. 11, to reach a new 52-week high. The stock also pays a 5% dividend yield at that breakout level, said Perry, who has seen the stock rise as a current recommendation in his Cash Machine newsletter.

Chart of Exxon Mobil’s Annual Dividend Payments is courtesy of Stock Rover.

Exxon Mobil ranks as the only major oil company to emerge from the last five years with capacity for growth in free cash flow, according to BofA Global Research. But while claiming a rich opportunity slate, its chosen pace of investment is perceived as underestimating cyclical risks, BofA researchers wrote.

XOM proved capable of navigating COVID volatility but at a price, adding $20 billion to its balance sheet, and overshadowing prudent management of prior cycles, in contrast to peer companies that cut their dividends, BofA wrote. As BofA’s top Energy sector stock for 2022, Exxon Mobil is estimated to have the capacity to resume dividend growth on both an absolute and per-share basis, while restoring its balance sheet to pre-COVID levels.

Pension Chief Elevates Energy ETF Among Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

Bob Carlson, who heads the Retirement Watch investment newsletter, said his top pick for conservative to moderate investors is Energy Select Sector SPDR ETF (XLE), featuring Exxon Mobil as the exchange-traded fund’s (ETF) top holding among 21 stocks. Carlson, who serves as chairman of the Board of Trustees of Virginia’s Fairfax County Employees’ Retirement System with more than $4 billion in assets, said energy stocks finished 2021 strongly, and most of the factors that propelled those gains will continue in 2022.

“Inflation is likely to remain high for much of 2022 and perhaps longer,” Carlson said. “Energy stocks traditionally are a good inflation hedge.”

Energy stocks had a strong finish in 2021, and most of the reasons that propelled those gains continue in 2022, Carlson commented. For example, inflation is likely to remain high for much of 2022 and perhaps longer, with energy stocks traditionally offering a good inflation hedge, Carlson added.

Plus, capital investments in the energy sector lagged the last few years, Carlson conveyed. Capital investments aren’t going to surge enough to increase supply anytime, he forecast.

“In fact, some governments are discouraging or prohibiting additional investments in traditional energy sources, and many banks and other capital sources reduced their exposure to the sector as part of their environmental policies,” Carlson said.

Energy Demand Is Likely to Exceed Supply, Unless a Recession Unexpectedly Occurs, Pension Chairman Predicts

The result is demand is likely to exceed supply for a while, absent a recession, Carlson counseled.

Many energy companies, especially the shale oil producers, have made it clear that they will be more shareholder friendly going forward, Carlson commented. Instead of investing heavily to maximize production, they will focus more on being profitable and ensuring shareholders have cash distributions and stock price appreciation, he continued.

Another factor favoring energy investments is that the dollar is likely to decline in 2022 against many other currencies, Carlson said. Oil and most other energy sources are priced in U.S. dollars, so a dip in the dollar should increase the prices of oil and other forms of energy, he added.

There are 21 stocks in the energy sector of the S&P 500. At the end of 2021, those stocks had a combined market value of about $1 trillion. That’s about a third of Apple’s (NASDAQ: AAPL) $3 trillion market value and a little more than the 2021 increase in AAPL’s market capitalization, Carlson said.

Pension fund and Retirement Watch chief Bob Carlson answers questions from columnist Paul Dykewicz.

From discussions with certain investors, a big issue that gained support from enough shareholders to win three of 12 Exxon Mobil board seats in a recent shareholder vote was less about climate and more about capital discipline and continuing a sustainable and growing dividend for the stock, BofA wrote. There is little doubt dividend sustainability came under scrutiny through the cyclical trough of 2020 and the company’s payout may increase in 2022 for the first time since 2019, BofA added.

Chart courtesy of www.stockcharts.com

Mondelez Joins Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

Mondelez International, Inc. (NASDAQ: MDLZ), a multinational confectionery, food, holding and beverage and snack food company based in Chicago, Illinois, is BofA’s top pick in the Consumer Staples sector. BoA described Mondelez as a high-quality stock that has positive gross domestic product (GDP) and interest rate betas.

Based on analysts offering 12-month price targets for Mondelez International in the last three months, the average price target is $72 with estimates ranging from a high of $76 to a low of $67, according to NASDAQ.

The Keltner Channels below (built around a simple moving average line) show the low volatility surrounding Mondelez International’s rapid stock price increase.

Chart generated using Stock Rover.

However, Mondelez’s share price has soared recently, so the potential profit by investing in the stock now is not as large as it would have been a little more than a month ago. Nonetheless, Mondelez International gained a nod from BofA analysts.

Chart courtesy of www.stockcharts.com

Welltower Gains Spot With Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

Welltower Inc. (NYSE: WELL), a Toledo, Ohio, real estate investment trust (REIT) that invests in health care infrastructure, is BofA’s preferred choice in the real estate sector. BofA cited the REIT’s “attractive dividend yield” of 2.9% as a reason to own its shares.

The $94 price objective for WELL set by BofA accounts for depressed earnings due to the COVID pandemic, as well as expectations of a multi-year period of above-average earnings growth due to a rebound in senior housing as the pandemic wanes. The stock’s price may outperform that estimate amid better-than-expected senior housing or medical office building performance, higher-than-forecast dividend growth and reduced interest rates.

But risks remain. They include public-pay reimbursement cuts, a more competitive acquisitions environment, weaker-than-expected senior housing fundamentals, increased tenant credit risk and rising interest rates, BofA noted.

Welltower has been one of the top holdings of one of Carlson’s recommended funds, Cohen & Steers Realty Shares (CSRSX). Cell tower firms and data storage companies have benefited from increased use of mobile technology and will do so, he added.

Chart courtesy of www.stockcharts.com

Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls Include Eastman Chemical

Kingsport, Tennessee-based Eastman Chemical (NYSE: EMN), an independent global specialty materials company that produces a broad range of advanced materials, chemicals and fibers for everyday purposes, received an upgraded rating from BofA to a buy from neutral in August 2021. The investment firm boosted its earnings per share (EPS) and earnings before interest, taxes, depreciation and amortization (EBITDA) estimates, as well as its price objective on Eastman Chemical to $140, up from $130.

The company, BofA’s favorite choice in the Materials sector, offers an enticing dividend yield of 2.6%. Once a subsidiary of Kodak, EMN’s businesses now offer a highly diversified set of chemical products delivering exposure to various markets. This is accomplished through an expertise in four primary chemical chains: coal gasification and acetyls, para-xylene and polyesters, olefins, and methanol and alkyamines. EMN then markets these products to customers across the product chain, starting at upstream commodities and moving down to highly differentiated chemical derivatives, BofA wrote.

Chart courtesy of www.stockcharts.com

Eastman Chemical Should Not Be Overlooked, BofA Wrote

Eastman Chemical has executed well both through and in the wake of the COVID recession, building on innovation-led initiatives while adding avenues for growth, BofA wrote. Supplementing the revenue story is a transition in cash deployment from debt pay down to more direct shareholder value creation. With its shares trading below its highs, BofA sees an attractive value and entry point for investors.

BofA’s $140 price objective is based on the average of its enterprise value to 2022 estimated earnings before interest, taxes, depreciation and amortization (EBITDA) valuation of $147 and its price to 2022 estimated earnings per share (EPS) valuation of $134. The price target is based on 10.5x and 13.5x multiples for BofA’s 2022 EBITDA and EPS estimates, respectively, near the high-end of historical five-year peak valuations of 11.0x forward EBITDA and 14.5x forward price-to-earnings (P/E). BofA described that level as appropriate due to Eastman Chemical’s expected return to normal profit level, consistent free cash flow generation and positive earnings momentum.

Chart generated using Stock Rover.

CVS Captures Place Among Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

CVS Health (NYSE: CVS), of Woonsocket, Rhode Island, is one of the largest health care companies in the United States, providing retail, mail and specialty pharmacy dispensing services and pharmacy benefits. CVS is among the most vertically integrated publicly traded healthcare companies and ranks as BofA’s favorite health care stock for 2022.

CVS Health has been taking market share across its three businesses and continues to produce a significant amount of cash flow to support the ongoing growth strategy, BofA wrote. Thus, BoA affirmed its buy rating on CVS and boosted its price objective from $112 to $115.

BofA increased its fiscal year 2021 EPS on CVS from $8.00 to $8.04, maintained its fiscal year 2022 EPS at $8.23 and cut its fiscal year 2023 EPS from $9.08 to $8.98. The latter change stemmed from incremental investments tied to different service buildouts, which are not expected to aid profit materially until at least fiscal year 2024. Share buybacks are expected, with potential mergers and acquisition (M&A) action tied to the company’s growth initiatives to offer near-term catalysts aside from sustaining ongoing operational strength.

Chart courtesy of www.stockcharts.com

Non-Dividend Walt Disney Misses List of Seven Dividend Investments to Purchase for Profiting Despite 2022 Pitfalls

Despite near-term COVID pressures and higher direct-to-consumer (DTC) expenses, BofA expect Walt Disney (NYSE: DIS) to grow stronger due to robust Disney+/Hulu/ESPN+ subscriber growth and long-term theme park margin potential, among other reasons. Key catalysts include Disney+ video price increases and more widespread launch in Japan, theme park re-openings and capacity increases and resumption of feature film/TV releases.

Chart generated using Stock Rover.

BofA is maintaining its buy rating and a $192 price objective on Disney’s stock. The investment firm trimmed its earnings outlook for Disney to reflect slower vaccine rollout leading to more gradual theme park and hotel re-openings, causing temporary delays in production due to a resurgence in COVID cases, theatrical film delays and increased investment in DTC initiatives.

Disney also has been slowed by closures of Disneyland in California and Disneyland in Paris on Oct. 30, along with Disneyland in Hong Kong on Dec. 1, BofA wrote. Those shutdowns led to employee furloughs and other cost-saving measures.

Dividend investors should keep in mind that Disney has yet to restore its dividend after suspending it in 2021. However, Disney paid dividends totaling $2.9 billion in fiscal year 2019 and it may do so again in the future, after investing heavily for now in the streaming segment of its business.

Chart courtesy of www.stockcharts.com

CDC Recommends Americans Wear Most Protective Masks Possible

The Centers for Disease Control and Prevention (CDC) recommended late Friday, Jan. 14, for Americans to wear the most protective masks available but stopped short of calling for nationwide use of the top-of-the-line N95 and KN95 respirators. The keys are to wear the most protective masks, ensure they fit well and that they are worn consistently, the CDC added.

The United States set a dubious new record on Monday, Jan. 10, when it reported 1.35 million new COVID-19 infections, breaking the previous peak for daily cases in a single country. The CDC now blames the Omicron variant of COVID-19 as the cause of 89.3% of total new cases in the United States.

The U.S. Department of Health and Human Services reported that 142,388 people were hospitalized nationwide with the virus as of Sunday, Jan. 9, exceeding the previous single-day record of 142,315 reported on January 14, 2021. In response, the Biden administration called for U.S. insurers to cover eight at-home tests each month.

Canceled flights keep growing by the thousands due to rising COVID cases, as workers at airlines, airports and related retailers call in sick. The Mid-Atlantic region of Washington, D.C., Maryland and Virginia has set records for daily cases during the last week, with many other regions also hitting new highs COVID-19 cases.

COVID-19 Concerns Climb Along With Cases and Deaths

The Omicron variant of COVID-19 is combining with the Delta version to trigger renewed calls for people in high-risk locales to obtain vaccinations, wear masks indoors and even stay home. Government and public health leaders in the United States also are urging people to receive booster shots, if they are eligible.

The CDC reported that the variants are spurring people to obtain COVID-19 boosters. However, nearly 62 million people in the United States remain eligible to be vaccinated but have not done so, said Dr. Anthony Fauci, the chief White House medical adviser on COVID-19.

As of Jan 14, 248,338,448 people, or 74.8% of the U.S. population, have received at least one dose of a COVID-19 vaccine, the CDC reported. Those who are fully vaccinated total 208,791,862, or 62.9% of the U.S. population, according to the CDC.

COVID-19 deaths worldwide, as of Jan. 14, topped the 5.5 million mark to hit 5,527,145, according to Johns Hopkins University. Worldwide COVID-19 cases have zoomed past 322 million, reaching 322,422,174 on that date.

U.S. COVID-19 cases, as of Jan. 14, jumped about 5 million in the past week to total 64,671,933 and caused 848,812 deaths. America has the dreaded distinction as the country with the most COVID-19 cases and deaths.

The seven dividend investments to purchase for profiting despite 2022 pitfalls are considered suitable for holding through whatever happens in the new year. Investors willing to accept that time horizon may find that patience truly can be a virtue for dividend seekers.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street Journal, Investor’s Business Daily, USA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul, who can be followed on Twitter @PaulDykewicz, is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. The book is great as a gift and is endorsed by Joe Montana, Joe Theismann, Ara Parseghian, “Rocket” Ismail, Reggie Brooks, Dick Vitale and many others. Call 202-677-4457 for multiple-book pricing.

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