The Fed broke the string of 75 basis point rate hikes with its recent 50 bps hike in response to the cooling inflation numbers that provided some relief among investors. However, it was short-lived as U.S. stocks suffered their longest weekly losing streak with the Federal Reserve’s renewed vow to keep interest rates as high as 5.1% in the next year.
The economists at Bank of America continue to expect a mild recession in the first quarter of next year with negative GDP for 2023. Moreover, a Reuters poll of economists showed that U.S. economic growth could slow to 0.3% in 2023. The poll also suggests a 60% chance of a U.S. recession next year.
With widespread recession fears, investing in dividend-paying stocks could add a defensive layer to one’s portfolio. Thus, we think it could be wise to invest in fundamentally sound dividend stocks BHP Group Limited (BHP), Albertsons Companies, Inc. (ACI), and Global Partners LP (GLP) to navigate a potential recession.
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia, BHP operates as a resources company in Australia, Europe, China, Japan, India, South Korea, the rest of Asia, North America, South America, and internationally. It operates through Petroleum, Copper, Iron Ore, and Coal segments.
On December 12, BHP collaborated with I-ROX, under which the companies will work together to seek to accelerate the development of I-ROX’s technology and business, and BHP will be offered direct access to this potentially disruptive technology. BHP also made an equity investment in and collaborated with I-Pulse to identify new applications for pulsed-power technology in a mining context.
The collaboration with I-Pulse and I-ROX is expected to enhance BHP’s growing portfolio of options with the potential to both improve the competitiveness of and help decarbonize their current business.
BHP’s four-year average dividend yield is 7.78%, and its forward annual dividend of $7 translates to an 11.44% yield. Its dividends have grown at 37.6% and 33.1% CAGRs over the past three and five years, respectively. On September 22, the company paid its shareholders a dividend of $1.75 per share.
For the year ended June 30, 2022, BHP’s revenues increased 14.4% to $65.10 billion. Its underlying attributable profit and underlying basic earnings per ordinary share came in at $23.82 billion and $4.71, increasing 39.5% and 39.4% year-over-year, respectively. Also, its underlying EBITDA came in at $40.63 billion, up 15.9% year-over-year.
For fiscal 2023 ending June 30, Street expects BHP’s EPS to increase 6.6% year-over-year to $5.01. Over the past three months, the stock has gained 20.1% to close the last trading session at $60.82. BHP has a beta of 0.80.
BHP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a B grade for Value and Quality. Out of 36 stocks in the B-rated Industrial – Metals industry, it is ranked first. To see the other ratings of BHP for Growth, Momentum, Stability, and Sentiment, click here.
Albertsons Companies, Inc. (ACI)
ACI is engaged in the operation of food and drug stores in the United States. It offers grocery, general merchandise, health and beauty care products, pharmacy, fuel, and other items and services.
On October 14, Kroger Co. (KR) and ACI announced a definitive merger agreement to establish a national footprint and unite around Kroger’s Purpose to Feed the Human Spirit. The combined company is expected to invest $1 billion to continue raising associate wages and benefits and enhance customer experience. On top of it, ACI will pay a special cash dividend of up to $4 billion to its shareholders.
Chan Galbato, Co-Chair of the ACI board of directors, said, “This transaction with Kroger provides substantial value to shareholders and exciting opportunities for associates to be part of a combined organization with the ability to better support the lives and health of millions of Americans.”
ACI’s four-year average dividend yield is 3.70%, and its forward annual dividend of $0.48 translates to a 2.32% yield. The company paid a dividend of $0.12 per share on November 14, 2022.
For the fiscal quarter that ended September 10, 2022, ACI’s net sales and other revenue increased 8.6% year-over-year to $17.92 billion. Its gross margin grew 6.1% from the year-ago value to $5 billion, while its operating income was up 9.3% year-over-year to $531 million.
The company’s adjusted net income came in at $418.30 million, representing an increase of 13.2% year-over-year. Also, its adjusted net income per share rose 12.5% year-over-year to $0.72. In addition, the ACI’s adjusted EBITDA increased 8.6% from the prior-year value to $1.05 billion.
Analysts expect ACI’s revenue for the quarter ended November 30, 2022, to increase 4.8% year-over-year to $17.53 billion. Its EPS is expected to increase by 8% per annum over the next five years. It has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained marginally over the past three months to close the last trading session at $20.59. ACI has a beta of 0.33.
ACI’s POWR Ratings reflect its solid prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has an A grade for Value and a B for Sentiment and Quality. In the A-rated Grocery/Big Box Retailers industry, it is ranked #6 out of 39 stocks.
In addition to the POWR Rating grades I have highlighted, you can check the other ratings of ACI for Growth, Momentum, and Stability here.
Global Partners LP (GLP)
GLP purchases, sell, gathers, blends, stores, and manages the logistics of transporting gasoline and gasoline blend stocks, distillates, residual oil, renewable fuels, crude oil, and propane to wholesalers, retailers, and commercial customers in the New England states, Mid-Atlantic region and New York.
On September 21, 2022, the company further expanded its retail footprint in the Mid-Atlantic region by acquiring Tidewater Convenience, Inc., with 15 locations in Southeast Virginia.
Mark Cosenza, SVP of Gasoline, Distribution, and Station Operations, said, “We are committed to continuing to expand by adding strategic locations to our vertically integrated network. Virginia is a key market that complements our existing portfolio.”
The company’s four-year average dividend yield is 10.93%, and its forward annual dividend of $2.50 translates to a 7.53% yield. Its dividends have grown at 5.6% and 5.4% CAGRs over the past three and five years. It paid a quarterly dividend of $0.63 per common unit on November 14, 2022.
GLP’s sales increased 39.2% year-over-year to $4.63 billion for the third quarter ended September 30, 2022. Its gross profit grew 61.7% from the year-ago value to $328.38 million, while its operating income rose 163.2% year-over-year to $141.29 million.
The company’s adjusted EBITDA increased 112.8% year-over-year to $168.51 million. Also, its net income attributable to common limited partners and EPS increased 263.1% and 262.8% year-over-year to $105.95 million and $3.12.
Street expects GLP’s EPS and revenue for the quarter ending December 31, 2022, to increase 218.2% and 10.2% year-over-year to $1.40 and $4.51 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 62.2% over the past six months and 41.4% year-to-date to close the last trading session at $32.72. GLP has a 24-month beta of 0.82.
GLP’s POWR Ratings reflect this promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Momentum and a B for Growth and Sentiment. Within the A-rated MLPs – Oil & Gas industry, it is ranked first out of 31 stocks. Click here to see the other ratings of GLP for Stability and Quality.
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BHP shares were trading at $61.72 per share on Tuesday morning, up $0.90 (+1.48%). Year-to-date, BHP has gained 28.04%, versus a -18.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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