This is a guest contribution by Bob Ciura of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth portfolios for the long run.
The recent swoon in the stock market has created a lot of fear and losses among investors, but in addition to that, downturns create terrific opportunities. For investors in high-quality dividend stocks, selloffs bring with them more favorable valuations, and higher dividend yields.
High dividend stocks are appealing for income investors, as the S&P 500 Index yields just 1.7% on average right now. By contrast, the 3 high dividend stocks in this article all have current yields in excess of 5%, and are attractively valued today.
Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance is the largest retail pharmacy in both the United States and Europe. Through its flagship Walgreens business and other business ventures, the company has a presence in more than 9 countries, and has more than 13,000 stores in the U.S., Europe, and Latin America.
Walgreens grew sales by 3% in the most recent quarter. Adjusted earnings-per-share declined by 27% over the prior year’s quarter, from $1.59 to $1.16, mostly due to high COVID-19 vaccinations in the prior year’s period. Still, earnings-per-share exceeded analysts’ consensus by $0.05 and the company has beaten analysts’ estimates for 11 consecutive quarters.
As the pandemic has subsided, Walgreens is facing tough comparisons as fewer people get vaccinated or are sick from the coronavirus. It thus reaffirmed its guidance for earnings-per-share of $4.45-$4.65 in fiscal 2023, implying a -10% decrease at the mid-point. However, the company remains highly profitable with more than enough cushion to pay its hefty dividend.
The stock has plunged 30% in the past 12 months due to the fading tailwind from the pandemic (2.4 million vaccinations in Q2-2023 vs. 11.8 million in Q2-2022). However, shares are now attractively valued at just ~6.5 times this year’s earnings-per-share. And, WBA stock has a very high dividend yield of 6.4%. Walgreens has increased its dividend for over 40 consecutive years, placing it on the list of Dividend Aristocrats.
Leggett & Platt (LEG)
Leggett & Platt is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and industrial products. Leggett & Platt has 14 business units and more than 20,000 employees. The company qualifies for the Dividend Kings list as it has 52 years of consecutive dividend increases.
As a global manufacturer, the company has been challenged by rising interest rates and cost inflation. In the most recent quarter, the company reported revenues of $1.21 billion for the quarter, which represents an 8% decline compared to the prior year’s quarter. Revenues were slightly higher than the consensus estimate. The company’s revenue performance was stronger than the one recorded during the previous quarter, when Leggett & Platt had recorded a bigger revenue decline.
Leggett & Platt generated earnings-per-share of $0.39 during the first quarter, which was weaker than the company’s earnings-per-share during the previous quarter, when Leggett & Platt had earned $0.66 per share. A pullback in profits was expected, however, and did not come as a surprise to the market. Management has updated its revenue guidance for the current fiscal year. The company is forecasting revenues of $4.8 billion to $5.2 billion, implying flat to down revenues this year. The earnings-per-share guidance range has been set at $1.50 to $1.90 for 2023.
Profits are down for LEG, but the company remains profitable with the ability to continue paying the dividend. In the long run, Leggett & Platt will likely continue to deliver earnings-per-share growth through a combination of organic sales increases, acquisitions, and ongoing share repurchases, which have lowered the company’s share count slightly over the last couple of years. LEG stock currently yields 5.8%.
Whirlpool Corp. (WHR)
Whirlpool Corporation is a leading home appliance company with well-known brands like Whirlpool, KitchenAid, and Maytag. Roughly half of the company’s sales are in North America, but Whirlpool does business around the world under 13 principal brand names. The company generated nearly $20 billion in sales in 2022.
Whirlpool has navigated the difficult economic climate well. In the 2023 first quarter, sales came in at $4.6 billion, which was down 5.5% compared to first quarter 2022. Ongoing earnings per diluted share was $2.66 in the quarter, 50% below last year’s $5.31 per share. Whirlpool reaffirmed its 2023 guidance, which sees ongoing earnings-per-share coming in at $16.00 to $18.00 on revenue of $19.4 billion, representing a 1% to 2% decline from the prior year.
Future growth will also be aided by a recent transaction. On January 17, 2023, Whirlpool entered into an agreement with Arçelik A.Ş to transform its portfolio. Whirlpool is contributing its European major domestic appliance business, while Arçelik will contribute its major domestic appliance, consumer electronics, air conditioning, and small domestic appliance businesses into a newly formed entity.
Whirlpool will own 25% of this new entity, which will have combined sales of over €6 billion, while Arçelik will own the remaining 75%. Additionally, Whirlpool agreed to sell its Middle East and Africa business to Arçelik.
Whirlpool has strong brands, and its competitive advantages include its global presence and a strong control over its costs, which is why the company generates significantly higher margins than its peers. The company also has a strong balance sheet. As of the most recent report the company held $1.4 billion in cash, $6.1 billion in current assets and $16.9 billion in total assets against $5.9 billion in current liabilities and $14.6 billion in total liabilities. Long-term debt equaled $7.4 billion.
For the full year, Whirlpool expects cash provided by operating activities to total roughly $1.4 billion, with $800 million in free cash flow. Such strong cash flow allows the company to return significant amounts of cash to investors. The stock has a 5.3% dividend yield.