The Fed will likely raise its benchmark interest rate by 25 basis points later this month due to a surge in labor costs and a strong labor market. With the market expected to remain volatile, let’s discuss why buying dividend-paying stocks Johnson & Johnson (JNJ), Novartis AG (NVS), and ARC Document Solutions, Inc. (ARC) could help investors safeguard their portfolios by generating a stable income.

Atlanta Fed President, Raphael Bostic, believes that interest rates need to go higher still, remaining elevated “well into 2024” as the battle with inflation continues. With inflation well above its target, there is a growing concern that more interest rate hikes than even central bank officials anticipate will be needed.

With risk-averse investors concerned about the pace of rate hikes pushing the economy into a recession, their judgment could be emotionally charged. When faced with a volatile market, dividends can provide a buffer against a recession by generating a stable income stream.

Investors’ interest in dividend stocks is evident from the SPDR S&P Dividend ETF (SDY) 3.5% returns over the past six months.

Amid this backdrop, it could be wise for investors to buy and hold fundamentally strong dividend stocks JNJ, NVS, and ARC.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health; Pharmaceutical; and MedTech. 

In terms of the trailing-12-month gross profit margin, JNJ’s 67.36% is 21.4% higher than the 55.50% industry average. Likewise, its 0.51x trailing-12-month asset turnover ratio is 51.3% higher than the industry average of 0.34x. 

Over the last three years, JNJ’s dividend payouts have grown at a 6% CAGR. Its four-year average dividend yield is 2.60%, and its forward annual dividend of $4.52 per share translates to a 2.93% yield on current prices. It is expected to pay a quarterly dividend of $1.13 per share on March 7, 2023. 

On December 22, 2022, JNJ announced its acquisition of Abiomed, Inc. (ABMD). JNJ’s CEO, Joaquin Duato, believes this acquisition is essential to accelerate growth in its MedTech business segment and deliver innovative medical technologies to more people worldwide.

JNJ’s U.S. sales increased 2.9% year-over-year to $12.52 billion for the fourth quarter that ended December 31, 2022. Its non-GAAP net earnings rose 9.5% year-over-year to $6.22 billion. The company’s non-GAAP EPS increased 10.3% from the year-ago value to $2.35.

JNJ’s EPS for the quarter ending June 30, 2023, is expected to increase 0.9% year-over-year to $2.61. Its revenue for the quarter ending March 31, 2023, is expected to increase 0.7% year-over-year to $23.59 billion.

The company has an impressive earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past six months, the stock has fallen 5.4% to close the last trading session at $154.02.

JNJ’s strong fundamentals are reflected in its POWR Ratings. The company has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. 

In addition, it has an A grade for Stability and a B for Value, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #6 of 168 stocks. 

Click here to see the additional POWR Ratings of JNJ for Growth, Momentum.  

Novartis AG (NVS) 

Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments, Innovative Medicines; and Sandoz. 

In terms of the trailing-12-month gross profit margin, NVS’ 70.90% is 27.8% higher than the 55.50% industry average. Likewise, its 34.74% trailing-12-month EBITDA margin is 875.2% higher than the industry average of 3.56%. 

Over the last three years, NVS’ dividend payouts have grown at a 5.5% CAGR. Its four-year average dividend yield is 3.58%, and its forward annual dividend of $3.47 per share translates to a 4.10% yield on prevailing prices. It is expected to pay a quarterly dividend of $3.47 per share on March 20, 2023. 

On January 24, 2023, Sandoz, an NVS division, signed an agreement to acquire worldwide product rights for the leading systemic antifungal agent Mycamine from Astellas. Sandoz CEO, Richard Saynor, said, “Acquiring this leading and respected global brand will significantly reinforce the Sandoz global hospital offering, as well as complement our existing global leadership position in generic antibiotics.”

For the fiscal fourth quarter that ended December 31, 2022, NVS’ total liabilities declined 9.3% to $58.03 billion, compared to $63.97 million for the fiscal year that ended December 31, 2021. Its net cash flows from operating activities came in at $4.11 billion, representing an increase of 5.8% year-over-year. Also, its net income came in at $1.47 billion.  

Analysts expect NVS’ EPS and revenue for the quarter ending March 31, 2023, to increase 6.2% and 0.9% year-over-year to $1.55 and $12.64 billion, respectively. Over the past six months, the stock has gained 6.3% to close the last trading session at $84.68.  

NVS’ POWR ratings reflect this promising outlook. NVS has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It is ranked #3 in the same industry. It has an A grade for Stability and a B for Value, Sentiment, and Quality.

We have also given NVS grades for Growth and Momentum. Get all NVS ratings here.

ARC Document Solutions, Inc. (ARC)

ARC, a digital printing company, provides digital printing and document-related services in the United States. It provides managed print services, cloud-based document management software, and other digital hosting services.

In terms of the trailing-12-month gross profit margin, ARC’s 33.56% is 16% higher than the 28.95% industry average. Likewise, its 9.84% trailing-12-month levered FCF margin is 163.9% higher than the industry average of 3.73%. 

ARC’s four-year average dividend yield is 2.28%, and its forward annual dividend of $0.20 per share translates to a 6.12% yield on current prices. It is expected to pay a quarterly dividend of $0.05 per share on May 31, 2023. 

For the fiscal year that ended December 31, 2022, ARC’s total net sales increased 5.1% year-over-year to $286.01 million. The company’s income from operations increased 21.3% year-over-year to $18.36 million.

Adjusted net income attributable to ARC increased 26.4% year-over-year to $11.99 million. In addition, its adjusted EPS came in at $0.28, representing a 27.3% increase from the prior-year quarter.

Analysts expect ARC’s EPS and revenue for the fiscal year 2023 to increase 10.7% and 1.3% year-over-year to $0.31 and $289.60 million, respectively. Over the past six months, the stock has gained 10.1% to close the last trading session at $3.27. 

ARC’s POWR Ratings reflect this positive outlook. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. It is ranked first out of 40 stocks in the B-rated Outsourcing – Business Services industry. In addition, it has an A grade for Value, Sentiment, and Quality.

To see the other ratings of ARC for Growth, Momentum, and Stability, click here. 

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JNJ shares were trading at $155.48 per share on Monday afternoon, up $1.46 (+0.95%). Year-to-date, JNJ has declined -11.35%, versus a 6.42% rise in the benchmark S&P 500 index during the same period.

About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions. More...

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