Despite some recent turbulence, 2021 is shaping up to be yet another banner year in the U.S. stock market. The S&P 500 is up 23% as of this writing, which is significantly higher than its historical average. If you had said that the world would plunge into a global pandemic in early 2020 that would last through at least the end of 2021, few investors would have predicted that the U.S. stock market would be up 43% over that time frame.
Investors looking to fortify their portfolios in 2022 should consider investing in Chevron (CVX 2.59%), United Parcel Service (UPS 2.33%), and Procter & Gamble (PG 0.21%), which, as I write this, have dividend yields of 4.7%, 2%, and 2.2%, respectively. Splitting $25,000 equally among the three at those yields would result in a dividend payout of roughly $750.
Here's what makes each company a great buy now.
Chevron's business is booming as the company capitalizes on oil and gas prices at a seven-year high. It's a sight for sore eyes for investors who have stuck with Chevron through what has been a multiyear period of underperformance.
Chevron's most recent quarter marks its highest levels of quarterly revenue, net income, and free cash flow (FCF) in the past five years, which is impressive considering the second quarter of 2020 marked its lowest revenue, earnings, and FCF in the past five years.
Through all the ups and downs, Chevron has consistently paid and raised its dividend. For a company subject to commodity price risk, political risk, and ebbs and flows in the broader economy, being a Dividend Aristocrat is a noteworthy characteristic.
Chevron stock currently yields an impressive 4.7%. For investors looking to generate passive income, Chevron's diversified business deserves a look.
United Parcel Service
UPS has been one of the few industrial companies nearly impervious to market volatility. And that makes sense. UPS is on track for a record year thanks to strong demand from its residential customers, small and medium-sized business, and larger businesses that are recovering from a tough 2020.
UPS has also found a way to navigate supply chain issues and a labor shortage better than competitor FedEx (NYSE: FDX). FedEx reported quarterly results on Dec. 17. During the call, FedEx said it expects supply chain problems to linger for some time. "The supply chain constraints we're seeing today are two-fold. One is because of the lack of supply of critical components like semiconductors and the second is because of the congestions we're seeing in the port," said FedEx Chief Operating Officer Raj Subramaniam.
However, FedEx Chief Marketing and Communications Officer Brie Carere also mentioned on the call that FedEx is "forecasting that the U.S. domestic parcel market will reach 134 million pieces a day by the calendar year 2026, a remarkable 70% growth from 2020. E-commerce is expected to drive 90% of the parcel market growth."
The industry's potential is undeniable, and it could be smart to invest in both UPS and FedEx. However, UPS is arguably better positioned for the rise in e-commerce. It also has a 2% dividend yield, whereas FedEx has just a 1.2% yield.
Procter & Gamble
While the broader stock market ebbs and flows, one company in particular has seen its stock price steadily trend higher all year long. That company is Procter & Gamble, one of the largest consumer staple companies in the world.
Demand for P&G's products has been steadily increasing thanks to a growing population and the expansion of P&G's brands. Its dominant position gives the company the ability to increase sales and earnings during challenging business cycles or even during periods of high inflation.
P&G takes extra cash not used to operate its business and uses it to reinvest in its growth, buy back shares, and grow the dividend. For example, P&G generated $15.8 billion in adjusted free cash flow (FCF) in fiscal 2021, which ended in June, and bought back $11 billion in shares and paid $8 billion in dividends. Given its stable business and dedication to buying back shares and growing the dividend, P&G is one of the best blue chip dividend stocks around.
Investing in quality
Chevron, UPS, and P&G are all industry-leading businesses that have the balance sheets to outlast tough times. Although there are higher-yielding stocks out there, the strength of the underlying businesses of these three companies more than makes up for a lower yield.