The end of the year is often a time for investors to buy and sell stocks and clean up portfolios. Some investors allocate excess cash to new investments or add to existing holdings. Hence, we discuss 5 stocking stuffer stocks for Christmas 2022. It makes sense to look at your portfolio and add to undervalued stocks with the prospect of solid total returns. Alternatively, some stocks that were overvalued for years are now more reasonably priced. As Peter Lynch says,
“My system for over 30 years has been this: When stocks are attractive, you buy them. Sure, they can go lower. I’ve bought stocks at $12 that went to $2, but then they later went to $30.”
We emphasize dividend stocks providing a list of five stocking stuffer stocks to consider for Christmas 2022. Some are undervalued because of recession fears, and others face company-specific issues. But they are attractively priced with dividend yields greater than the S&P 500 Index and solid dividend safety.
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5 Stocking Stuffer Stocks for Christmas 2022
Verizon Communications (VZ) is a company we have talked about a few times this year. The telecommunications firm is struggling to grow its retail cellular subscribers. In response, investors have sold the stock. As a result, Verizon is down almost 29% in 2022. That said, Verizon is appreciably undervalued, trading at an earnings multiple of only 7.3X, nearly the lowest in the past decade.
Verizon’s dividend yield is nearly 7%, making it one of the highest-yielding blue-chip stocks and popular with dividend ETFs. The combination of low valuation compared to historical metrics and the high yield make the stock attractive for long-term investors. The excellent yield is combined with acceptable dividend safety of a ~47% payout ratio.
Verizon’s retail cellular growth should turn positive again as it rolls out faster 5G service across the country. As a result, investors will probably recognize the strong reward-to-risk profile in the future. Also, the stock is suitable for those seeking income with slow dividend growth.
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The second stock on our list is Medtronic (MDT), the world’s largest medical device and consumables company. The firm faces company-specific issues related to its pipeline, FDA warning letter, inflationary pressures, and lower guidance. Shareholders have exited the stock, pushing the valuation below the long-term range and presenting an opportunity.
Medtronic’s dividend yield is about 3.4%, near its high in the past ten years, and backed by a reasonable payout ratio of ~56%. The Dividend Aristocrat is known for its 45 years of annual dividend increases. The dividend increases are about 8% annually now.
The company is on sale now and should overcome its challenges. Moreover, the firm is exiting the difficult Patient Monitoring and Respiratory Intervention business. The dividend yield, low valuation, and minimal investor outlook make Medtronic an excellent stock to look at now.
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Enterprise Products (EPD) is the only master limited partnership (MLP) on the list. The American pipeline company owns about 50,000+ miles of pipelines for natural gas, oil, refined products, and petrochemicals. The company has a storage capacity of about 260+ million barrels of oil and refined products and 14 billion cubic feet of natural gas.
The partnership’s unit prices are still trading below pre-pandemic levels, and the valuation is lower than the historical norm. Consequently, the dividend yield is elevated at nearly 8%. Investors expect little from EPD because of regulatory pressures and the expected transition to renewables. But the company has several projects coming to fruition, and demand for liquefied petroleum gas (LPG) and liquefied natural gas (LNG), is high.
The combination of undervaluation, high dividend yield, and potential future growth make the pipeline firm attractive now because of the prospect of a high dividend yield and growing future cash flows.
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Pfizer has benefitted immensely from the COVID-19 pandemic. The company’s sales increased dramatically with the COVID-19 vaccine, Cominranty, and the anti-viral drug, Plaxlovid. As a result, total revenue was $99,878 million in the past twelve months compared to $41,651 million in 2020. However, the market fears COVID-related revenue will decline in the future; hence, the stock price is still down in 2022.
That said, Pfizer has several drugs with $1+ billion in annual revenue, including the Prevnar vaccine, Ibrance, Elquis, Xtandi, Vyndaqel/Vyndamax, Xeljanz, and Enbrel. Hence, it is not wholly dependent on COVID-related therapies for future growth.
Furthermore, the firm has spent its cash wisely, acquiring companies and therapies and positioning it for growth. Since 2021, Pfizer has purchased Trillium for its cancer drug candidates, Arena for its autoimmune candidate, ReViral for its RSV programs, biohaven for its CGRP assets (migraines), and GBT for its sickle cell disease treatments.
Pfizer is a Dividend Contender with 13 years of annual increases. The forward dividend yield of about 3% is supported by a conservative payout ratio of 35.3% and stellar free cash flow, providing confidence about future growth and dividend safety.
The stock price has recovered slightly, but the forward P/E ratio is still only 8.4X, below the historical average. The low valuation and nice dividend yield make Pfizer a preferred choice of dividend exchange-traded funds, like VYM or SCHD. Small investors should probably follow their lead with this innovative company.
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Lowe’s Companies (LOW) is well-known to many small investors as one of North America’s two largest home improvement retailers. Like many retailers, the year 2022 has proven challenging. Rising mortgage rates typically cause new home construction to decline affecting sales. Also, high inflation is causing house owners to concentrate on necessities rather than home remodeling.
But Lowe’s is a company that investors should like for the long-term. The company grows by selling more items through its stores. It adds to the store count each year too. Years of growth have permitted the firm to return cash to shareholders. As a result, Lowe’s is a Dividend King and Dividend Aristocrat with 61 years of consecutive annual increases. The retailer has had a double-digit dividend growth rate in the past decade. In addition, the conservative payout ratio of around 23% allows many more dividend increases.
Lowe’s stock price is down roughly 17% in 2022 and is an excellent opportunity. The forward price-to-earnings (P/E) ratio is ~15.3X below the historical range. The low valuation and high dividend growth rate make Lowe’s attractive now.
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Disclosure: Long VZ, MDT
A version of this post by Dividend Power originally appeared in Investor Place and was republished with permission.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.