After hovering near their all-time price high last month, U.S. stocks have resumed their sell-off partly on account of the Fed’s announcement that it will raise interest rates faster than it originally planned if necessary to curb inflation. In addition, several parts of the world are witnessing a resurgence of COVID-19 cases due to the rapid spread of the highly transmissible omicron variant, which is further fueling market volatility.

In December, the Labor Department reported that consumer prices jumped more than 6% in November, their highest year-over-year increase since 1982. So, the market anticipates as many as four interest rates hikes this year, though Fed officials have forecasted three increases in their short-term benchmark rate in 2022.

Amid this uncertainty, investors may resort to dividend-paying companies to insulate their portfolios from short-term market volatility by assuring a consistent income source. So, we believe it is prudent to buy shares of Merck & Co. Inc. (MRK - Get Rating) and Walgreens Boots Alliance Inc. (WBA - Get Rating) based on their fundamental strength and proven record of dividend growth.

Merck & Co. Inc. (MRK - Get Rating)

MRK in Kenilworth, N.J., is a global healthcare company that operates through two segments: Pharmaceutical and Animal Health. It also has a collaboration with Biocorp Production for the development and supply of the Mallya device and a licensing deal with The Medicines Patent Pool for molnupiravir, an investigational oral COVID-19 antiviral medication.

Last month, MRK and Ridgeback Biotherapeutics reported that the U.S. Food and Drug Administration (FDA) had issued an Emergency Use Authorization (EUA) for molnupiravir, an investigational oral antiviral (MK-4482, EIDD-2801).

MRK’s sales have increased 20% year-over-year to $13.15 billion for the third quarter ended Sept. 30, 2021. The company’s net income surged 55% from the prior-year quarter to $4.57 billion, while its EPS increased 55% year-over-year to $1.80.

The company’s EPS is expected to grow 27.4% year-over-year to $5.77 in fiscal 2021. Analysts expect MRK’s revenue to increase 15.6% year-over-year to $56.29 billion in fiscal 2022. MRK’s stock has gained 7.9% in price over the past nine months and 13.4% over the past month. Also, it has increased its dividend for 12 consecutive years.

MRK’s $2.76 annual dividend  yields 3.4% on its current stock price. On Jan. 7, the company paid a $0.69 quarterly dividend. It has a 2.9% four-year average dividend yield. Its dividend payouts have grown at an 8.2% CAGR over the past five years.

MRK’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.

MRK is also rated A  for Growth and a B for Value and Sentiment. Within the Medical – Pharmaceuticals industry, it is ranked #1 of 190 stocks. To see additional POWR Ratings for Momentum, Quality, and Stability for MRK, click here.

Walgreens Boots Alliance Inc. (WBA - Get Rating)

WBA in Deerfield, Ill., is a 170-year-old integrated pharmacy, healthcare, and retail business that serves millions of consumers and patients. The company operates through two segments: the United States and the International.

Last month, WBA and VillageMD announced plans to construct nine Village Medical at Walgreens primary care locations in San Antonio over the next year. These new locations mark the company’s entry into the sixth major market in Texas, joining Houston, El Paso, Austin, and Dallas.

During its first fiscal  quarter, ended Nov. 30, 2021, WBA’s sales increased 7.8% year-over-year to $33.90 billion. Its operating income came in at $1.28 billion, compared to a $535 million operating loss in the prior-year quarter. The company reported $3.58 billion in net income , compared to a $308 million net loss in the first quarter of 2020. Its EPS amounted to $4.13, compared to a $0.36 loss per share in the prior year.

Analysts expect WBA’s EPS to increase 3.2% year-over-year to $5.1 in its fiscal 2023. In addition, the company’s revenue is expected to increase 3.6% in fiscal 2023. Also, the stock has surged 13.9% in price over the past year and 14.6% over the past six months.

WBA paid a $0.48 quarterly dividend on Dec. 10, 2021. While the four-year average dividend yield for WBA is 3.4%, the current dividend translates to a 3.5% yield. Its dividend payouts have grown at  5.2% rate over the past five years. Also, it has increased its dividend for six consecutive years.

WBA’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. WBA is also rated a B grade for Value and Sentiment. Within the A-rated Medical – Drug Stores industry, it is ranked #3 of 4 stocks. Click here to see additional POWR Ratings for Growth, Quality, Momentum, and Stability for WBA.

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