Markets tanked yesterday, there’s no other way to put it. The NASDAQ fell more than 5%, the S&P 500 fell more than 4%, and the Dow Jones shed 1,200 points, also a 4% loss. The sharp drops hit after the official August inflation numbers came in substantially worse than expectations.
The data release has also firmed up convictions that the Federal Reserve will enact another 75 basis point rate hike later this month. Taken together, rising prices and higher interest rates increase the chances of a severe recession in the near future.
But there are concrete steps that the investors can take, now, to protect themselves in a difficult economic environment. Perhaps the easiest defensive stance to take is a move into ‘recession proof’ dividend stocks. Legendary investor Warren Buffett is a long-time advocate of this strategy.
Buffett keeps two main criteria when choosing dividend payers for his stock portfolio. First, Buffett always looks for companies with “an ability to increase prices rather easily without fear of significant loss of either market share or unit volume.” And second, he seeks out companies that also have “an ability to accommodate large dollar volume increases in business with only minor additional investment of capital.”
Buffett’s company, Berkshire Hathaway, currently makes dividend payers a majority of its portfolio. We’ve used the TipRanks platform to pull up details on two major dividend stocks in which the billionaire has invested billions. Let’s take a closer look at them, using the latest data and the analyst commentary.
Citigroup, Inc. (C)
The first stock we’ll look at, Citigroup, is one of the ‘Big Four’ banks in the US; it is the owner of Citibank, and boasts over $2.3 trillion in total assets. Citigroup is headquartered in New York City and does business globally; the company has a presence in more than 160 countries, providing a wide range of financial services and products to corporate, investment, institutional, governmental, and individual customers.
The company’s top line has been making gains year-over-year; the $19.6 billion reported in 2Q22 was up 11% from the year-ago quarter. Earnings beat the forecast, but declined y/y. The company reported total net income $4.5 billion, or $2.19 per diluted share; the total net was down 27% from 2Q21. EPS, while down 23% from the prior year, beat the $1.68 forecast by a wide margin.
Of interest to investors here, Citigroup returned $1.3 billion worth of capital to common shareholders during the second quarter, through both share repurchases and dividend payments. Citigroup has a long history of keeping up a reliable dividend, a history that stretches back to the late 1980s. The common share dividend now stands at 51 cents per quarter. It’s been held at this level for the past three years, and was kept steady despite the corona pandemic crisis. The dividend annualizes to $2.04 and gives a yield of 4.1%.
Warren Buffett remains long and strong, and made no changes to his position during the quarter. Berkshire Hathaway owns 55,155,797 shares worth over $2.7 billion right now.
Oppenheimer’s 5-star analyst Chris Kotowski also likes what he sees here. Acknowledging that C shares are trading well below the company’s total book value (TBV), he writes: “It’s amazing to think that just getting back to TBV would equate to a 61% return, and there’s a 4.1% dividend on top of that. Of course, there is more to play for here than the embedded capital in the company. There is a powerful client franchise… and 2Q22 results began to show some of the earnings power of that franchise.”
To this end, Kotowski puts an Outperform (i.e. Buy) rating on these shares, and his price target, set at $86, implies a robust 75% one-year upside potential for the stock. (To watch Kotowski’s track record, click here)
The Oppenheimer view represents the bulls here; the Street shows a definite split in the reviews for C. Out of 16 recent analyst reviews, there are 7 Buys, 8 Holds, and 1 sell, for a consensus rating of Moderate Buy. The stock is priced at $49 and the $60.70 average target suggests it has ~24% upside for the coming year. (See Citigroup stock forecast on TipRanks)
Kraft Heinz (KHC)
From banking, we’ll shift our sights to the food and grocery sector. As ‘recession proof’ sectors go, this is one of the classics – no matter what happens to the economy, food producers will continue to make sales. The same argument can be made for food firms as ‘inflation shelters;’ even though the August food index segment of the CPI showed an 11.4% increase over the past year, the higher prices don’t mean that people have stopped buying food.
And this brings us to Kraft Heinz. This is one of the best-known names in the global food sector; it is North America’s third largest food and beverage company, and the world’s fifth largest. In both 2020 and 2021, Kraft Heinz saw $26 billion in annual sales revenue. The company’s quarterly revenues have, for past several years, consistently come in between $6 billion and $7 billion. Kraft Heinz shares are up 1% this year — more than enough to outperform the broader markets.
Kraft Heinz has been paying out a common share dividend since 2012, and has kept that dividend reliable – never missing a payment – through that time. The payment has been held at 40 cents per common share since the start of 2019, and at this rate, annualized to $1.60, it gives a yield of 4.5%.
This stock is one that caught Buffett’s attention years ago. The billionaire first bought into KHC in the third quarter of 2015, and he currently holds well over 325 million shares of Kraft Heinz, representing a 26.6% ownership in the company. Buffett’s stake is worth approximately $11.4 billion at current valuations.
Buffett is far from the only bull here. 5-star analyst Christopher Growe, of Stifel, covers this stock and writes: “The company is managing inflation quite well with robust pricing and low levels of elasticity in a portfolio less influenced by private label (below the food industry average). This backdrop has supported a stronger sales and earnings growth performance for the business thus far in 2022 and this improved business and portfolio of brands should continue to support this top-tier growth for the company.”
Turning to the dividend, Growe expresses “confidence in the company’s [4.5%] dividend yield and we expect that dividend to grow in line with earnings going forward.”
In Growe’s view, KHC gets a Buy rating, and his $43 target price indicates his expectation of ~23% share gain going forward. (To watch Growe’s track record, click here)
While Growe is bullish here, the Street is not fully convinced. KHC shares have a consensus rating of Hold, based on 12 analyst reviews that include 4 Buys, 7 Holds, and 1 Sell. But the analysts might as well have said “buy” — because, on average, they think the stock, currently at $35.06, could zoom ahead to $42.32 within a year, delivering ~21% profits to new investors. (See KHC stock forecast on TipRanks)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Lock In High Dividend Yields While Prices Are Down On These 3 REITs
If history is any indication, one of the best ways to make long-term money in the stock market is by having the courage to buy stocks when they are largely out of favor. This is especially true of dividend stocks because when the prices decline, investors can lock in higher dividend yields for life. Certainly, investors should do their homework to ascertain the safety and reliability of a company’s dividends before buying on the basis of yield alone. Here are three real estate investment trusts
This Iconic Stock Is Down More Than 60%. Time to Buy the Dip?
With a family of eight brands worth $1 billion-plus each, Kraft Heinz (NASDAQ: KHC) has a solid footing in the consumer staples sector. On the hopeful side, Kraft Heinz just affirmed its financial guidance, lowered its leverage target, and provided details on its long-term growth strategy — including an emphasis on its food service (that’s food served outside of the home in such places as hotels and restaurants). Kraft Heinz is the third-largest food and beverage company in North America and the fifth-largest in the world.
3 U.S. Cannabis Stocks With the Most Upside
Three U.S. pot firms are well-positioned to benefit from a growing cannabis market, making their stocks look like bargains compared to Canadian rivals.
American City Business Journals
Class action lawsuit against Zillow, Microsoft hinges on browser tracking activity
Microsoft Corp. (Nasdaq: MSFT) and Zillow Group Inc. (Nasdaq: ZG) are being accused of wiretapping, according to a class action lawsuit filed Monday by two visitors to Zillow’s website. The complaint, filed in the U.S. District Court for Western Washington, alleges that Zillow, a Seattle-based online real estate platform, used a third-party tool from Redmond-based software maker Microsoft to track detailed behaviors of website visitors. While sites and platforms like Facebook and Google use users’ location and browsing data to track activity, the suit says that because neither Zillow nor Microsoft received consent to do so, it was illegal.
US 2- to 30-Year Curve Reaches Most Inverted Level This Century
(Bloomberg) — The premium of the two-year Treasury yield over the comparable 30-year benchmark increased to a level unseen this century after short-end rates extended their climb in the wake of this week’s hotter-than-anticipated US consumer-price inflation data.Most Read from BloombergPutin’s Options Narrow After Ukraine Scores Battlefield RoutRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%Ethereum Finishes Long-Awaited Energy-Saving ‘Merge’ UpgradeNY Judge Who Doesn’t Tolerate
IRS Changing How Beneficiaries Receive Retirement Funds
In an effort to streamline the regulation that governs how retirement accounts can be used, the IRS has proposed a change for 403(b) plans – a type of workplace retirement plan use mostly by public and non-profit employees. Employer-sponsored plans … Continue reading → The post The IRS Is Changing How Your Beneficiaries Receive Your Retirement Funds appeared first on SmartAsset Blog.
Cryptocurrency lobby group seeks to weigh in on SEC vs Ripple’s XRP lawsuit
Cryptocurrency advocacy group Chamber of Digital Commerce (CDC) has sought to be an amicus curiae (Latin for friend of court) in the lawsuit between the Securities and Exchange Commission and Ripple Labs. See related article: Ripple opposes SEC request to seal expert witness identities in XRP lawsuit Fast facts CDC Wednesday filed several documents in […]
Miners flee to Ethereum Classic as ‘The Merge’ arrives
The Merge, the long-awaited software upgrade that promises to make Ethereum transactions a lot greener, is expected to put miners out of jobs. With big bucks invested in computing hardware, many of them are seeking refuge in an alternative branch of Ethereum. Ethereum Classic, a hard fork of the Ethereum network, saw its hash rate soar to a record high on Thursday morning shortly after The Merge was completed.
How to Buy More than $10,000 in I Bonds Through This Loophole
In a world where the stock market is unpredictable and interest rates are rising, many investors are looking for someplace to put their money that is as close to risk-free as possible – even if it means forgoing the chance … Continue reading → The post How to Buy More than $10,000 in I Bonds Through This Loophole appeared first on SmartAsset Blog.
This Sell-Everything Rout Leaves a Sinking Feeling for Tech Stocks
(Bloomberg) — The last time technology stocks saw a selloff of the scale of Tuesday’s wipeout, the Nasdaq 100 Index was a week away from kicking off a monster rally thanks to unprecedented stimulus from the Federal Reserve. But panic-stricken bulls don’t have the Fed on their side this time.Most Read from BloombergAdobe Near Deal for Online Design Startup Figma, Sources SayRay Dalio Does the Math: Rates at 4.5% Would Sink Stocks by 20%Putin’s Options Narrow After Ukraine Scores Battlefield Rout