2 Great Dividend Stocks to Buy Now to Help Fight Inflation
Wall Street has once again focused on the possibility of an interest rate hike as the Fed signals a more hawkish shift to help combat 40-year high inflation. Recently released Fed minutes showed it was leaning towards a 0.50% rate hike at its next meeting, while shrinking its balance sheet.
The yield on the benchmark 10-year US Treasury is back to three-year highs and is approaching 2.7%. The market was initially pleased with the Fed’s decision to raise its key rate by just 0.25%. The Fed opted for a small first hike amid continued uncertainty caused by the Russian invasion of Ukraine. But Fed minutes and recent comments from Fed Governor Lael Brainard and St. Louis Fed President James Bullard seem to predict bigger rate hikes to come.
For example, Bullard said Thursday that he thinks the federal funds rate should probably be at 3.5% right now, not its current range of 0.25% and 0.50%. The need to reduce inflation by 8% amid persistent supply chain bottlenecks, which could be worsened by further lockdowns in China, seems paramount.
The recent decline sent the S&P 500 back below its 200-day moving average and the Nasdaq continued to encounter resistance at this crucial level. That said, bond yields are still all-time lows and the outlook for S&P 500 earnings, margins and revenue remains strong despite setbacks (see also: Are earnings estimates down).
Investors may want to stay in equities to beat inflation by 8%, while adding strong dividend yields that outpace US Treasuries. Here are some stocks to consider buying to do just that.
VICI Properties Inc. VICI
VICI Properties is a real estate investment trust focused on gaming, hospitality and entertainment. The company’s diverse portfolio of casinos and resorts includes nearly 30 gaming facilities in the United States, as well as more than 250 restaurants, bars, nightclubs and sportsbooks, and 25,000 hotel rooms.
VICI properties are leased to leading operators including Caesars, Hard Rock, Penn National Gaming, The Venetian Las Vegas and many more. VICI also has investments in four championship golf courses, as well as 34 acres of undeveloped land adjacent to the Las Vegas Strip and beyond.
VICI Properties agreed last August to buy MGM Growth Properties in a deal that values the casino real estate owner at $17.2 billion. The acquisition is expected to close in the first half of 2022 and would bring seven high-end Las Vegas resorts to VICI’s portfolio, as well as locations in the United States. The deal will transform the already massive entertainment and hotel REIT into a true giant in the casino, resort and convention world.
VICI’s 2021 revenue jumped 23% to $1.5 billion, with its adjusted FFO, which investors can think of as earnings, jumping 11%. Zacks estimates that its revenue will grow 32% in 2022 to $1.99 billion and then another 18% in 2023. Meanwhile, its adjusted FFO is expected to grow 8% this year and 7% in 2023. 2023. And those projections don’t include the pending MGM deal.
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VICI’s stagnant earnings review activity is helping it land a No. 3 (hold) Zacks rank for now. However, the company has consistently exceeded our earnings estimates. On top of that, 11 of the 13 brokerage recommendations Zacks has for VICI are “solid buys.”
Shares of VICI have climbed 25% over the past three years to roughly match its industry, which includes a 75% run over the past two years. The stock is down 5% in the past 12 months, following its sharp rise from its covid sell lows.
At around $27.90 per share, VICI is trading 17% below its all-time highs. VICI’s current Zacks consensus price target also represents a 29% upside from Thursday’s levels. And the stock is trading just at its three-year median at 14.4 times forward 12-month earnings and at a 30% discount to its sector.
The company’s current quarterly dividend of $0.36 per share is up 9% from its last payout. The payout helps VICI yield 5.04% right now to blow its industry average of 3.12% and destroy the 2.65% US Treasury 10-year. The performance helps make VICI even more attractive, given its strong valuation and solid outlook in an industry that is making a strong comeback as many people return to their pre-pandemic normal lives.
AbbVie stock is in the midst of a mammoth run that started to kick into high gear last fall. Despite its 30% rise in 2022, investors with a longer-term outlook shouldn’t really worry about having “missed” the pharmaceutical giant for a number of reasons. ABBV is more diverse than ever and far less exposed to the success of one of the world’s best-selling drugs, which is crucial since Humira biosimilars are already available outside the United States.
AbbVie acquired Allergan for $63 billion in 2020. The deal brought Botox and other popular drugs into a diverse portfolio that includes immunology, oncology, neuroscience, a strong R&D pipeline and more. of the. The company’s revenue soared 38% in FY20 and another 23% in FY2021 to $56 billion. The jump occurred even though Humira’s international revenue fell nearly 10%. ABBV’s adjusted profit also jumped 20% last year.
Zacks estimates its FY22 adjusted earnings are expected to jump a further 11% on sales up 7.4%, earning it $60.4 billion. AbbVie lands a No. 3 Zacks rank (Hold) right now and has seen its consensus earnings estimates for FY22 and FY23 rise since its release. And ABBV has consistently exceeded our quarterly EPS estimates.
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ABBV stock is up 165% over the past five years, which includes a significant tough time, to blow out the 75% of large-cap pharma and the 100% of the S&P 500. Wall Street has really started to gravitate towards ABBV shares as tech and growth trade began to ease in the fall of 2021, with the stock now up around 60% in the past six months from the rise in 2% of the benchmark and down 5% from the Nasdaq. ABBV stock surged again on Thursday to new highs at around $175 per share.
Although trading at new all-time highs, AbbVie still offers solid value, trading at a 30% discount from its five-year highs at 12.4 times 12-month forward earnings. This also represents an 18% discount to the 14.9X value of Large Cap Pharma and 37% against the S&P 500.
Despite its strong performance and outperformance, AbbVie’s 3.25% dividend yield crushes its sector average of 2.42% and the 10-year US Treasury’s 2.65%. ABBV has also continuously increased its payout, with a dividend up 250% since its inception in 2013. Wall Street remains bullish on ABBV, with 10 of the 14 brokerage recommendations Zacks has at “Strong Buys” or “Buys.”
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