With the stock market hovering around an all-time high, risk-averse investors may be looking for safer investments that can generate income even if there's a market downturn.
Dividend Aristocrats, which are members of the S&P 500 that have raised their annual payouts for at least 25 consecutive years, tend to be large and often stodgy companies. Although prone to underperforming a growth-orientated market like the one we are in, these companies offer consistent and reliable performance with a track record you can count on.
Three of our contributors pegged NextEra Energy (NEE 0.34%), PPG Industries (PPG 0.11%), and Stanley Black & Decker (SWK -0.01%) as Dividend Aristocrats worth buying on sale.
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A balanced way to invest in renewable energy
Daniel Foelber (NextEra Energy): America's largest electric utility has taken Wall Street by storm in recent years. The company has blended its existing regulated utility business with aggressive renewable investment. The capital-intensive strategy has impacted short-term results, but the stock has still outperformed the broader utility sector. That's because investors are looking past short-term performance -- believing that projects will pay off as NextEra retains its lead as the largest renewable producer by capacity in the U.S.
NextEra Energy is one of the most balanced ways to invest in renewable energy. Florida Power & Light, the company's main cash cow, provides predictable revenue no matter the market cycle. NextEra's long-term plan is to combine natural gas, wind energy, and solar to power steady earnings increases and dividend raises. That's an attractive proposition for dividend investors looking to generate income from a renewable investment.
After an excellent 2020, NextEra Energy stock has underperformed the S&P 500 so far this year. Given the growth expected from renewable energy in years to come, NextEra looks like the perfect Dividend Aristocrat to buy on sale now.
Paint your portfolio with this passive income powerhouse
Scott Levine (PPG Industries): Kids may be itching to start their Halloween shopping, but many investors are shopping for attractively priced dividend stocks to fortify their holdings. Regardless of which stage in your investing experience you find yourself, the luxury of sitting back and getting paid for doing nothing is alluring whether you're a newbie or an old-hand. And PPG Industries, with its noble Dividend Aristocrat status, is an option that investors can scoop up at a discount and enjoy a 1.6% yield.
With a history that reaches back more than 135 years, PPG Industries has not only distinguished itself as a company with a respectable history but as an impressive dividend payer, raising its payout to shareholders for 49 years. It won't be long, in fact, before the company earns the title of Dividend King.
PPG provides paints and coatings to a wide variety of industries, including aerospace, automotive, and marine to name a few. The company is benefiting from the global recovery after the COVID-related slowdowns in the many industries it serves. For example, the industrial coatings segment reported 70% and 458% year-over-year increases in sales and net income, respectively, for Q2 2021. Management also forecasts 2021 adjusted earnings per share of $7.40 to $7.60. Should it achieve the midpoint of this guidance, it will represent a 32% increase over 2020.
Trading at 15.1 times operating cash flow, PPG's stock is currently valued at a discount to its five-year average of 17.3. But that's not the only measure by which the stock seems cheaply priced; shares are priced at 23.6 times trailing earnings, representing a discount to the five-year average price-to-earnings (P/E) ratio of 27.5. In addition to its own valuations, PPG seems even more attractive considering that it's trading at 2.3 times sales, lower than the S&P 500 price-to-sales (P/S) multiple of 3.2. Whichever valuation metric you prefer -- cash flow, earnings, or sales -- PPG seems like a bargain.
Stanley Black & Decker looks like a good value
Lee Samaha (Stanley Black & Decker): The tool maker's stock has declined by 8.5% in the last three months. It's a move driven by fear that the company's earnings will suffer from ongoing raw material cost inflation. The fears are understandable, as Stanley has suffered from the issue in the recent past.
On the other hand, raw material prices have been rising through 2021, but management has hiked its full-year earnings guidance twice this year. Having started the year predicting earnings per share of $9.70-$10.30, it now stands at $11.35-$11.65.
In addition, the company's long-term growth prospects look excellent. Management will continue building out its acquisitions of recent years (including Craftsman) and developing its market-leading e-commerce capability. In addition, the recent acquisition of garden and products company MTD Holdings will add growth in a new category, and management believes, $1 of EPS by 2025.
All told, Stanley has good long-term growth prospects even if it faces some cost headwinds in the third quarter. As such, it's understandable if cautious investors take a wait-and-see approach. On the other hand, speculating over a quarter's earnings and timing an entry point into a stock on that basis is rarely an easy enterprise. So instead, investors should focus on whether or not it looks like an excellent long-term value right now.
