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Investing $100,000 in This Basket of Dividend Stocks Should Give You $4,000 in 2022 Income

By Daniel Foelber, Scott Levine, and Lee Samaha – Jan 11, 2022 at 2:00AM

Key Points

  • With a strong balance sheet and rising cash flow, Yamana Gold is committed to rewarding shareholders with its dividend.
  • If Kinder Morgan raises its dividend as planned, it would have a forward yield of 6.4%.
  • Light vehicle production will bounce in 2022, and Autoliv is an excellent way to play the theme.

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These top energy and industrial companies also have attractive dividend yields.

Most of us don't just have a spare $100,000 lying around. But if you did, investing in equal parts of Yamana Gold (AUY -0.68%), Kinder Morgan (KMI 1.21%), and Autoliv (ALV 1.00%) should earn you $4,000 off dividends alone in 2022 while exposing your portfolio to multiple industries. 

Investing in companies that pay sizable dividends can be a great way to supplement income in retirement or simply earn passive, low-tax income without the need to sell securities. However, many high-yield dividend stocks aren't worth the risk. Yamana Gold, Kinder Morgan, and Autoliv all have strong fundamentals that can back up their dividends. Here's what makes each a great buy now.

A glass globe surrounded by a fan of U.S. $1 bills.

Image source: Getty Images.

Dig into this lustrous dividend play

Scott Levine (Yamana Gold): Yes, you're right. Gold stocks are hardly among the usual suspects that dividend-hungry investors are considering when they're mining the market for new opportunities. Developing and sustaining gold-producing assets is a capital-intensive endeavor, and mining companies are sensitive to the ups and downs of the market price of gold; consequently, they often refrain from returning significant cash to shareholders. Yamana Gold's stock and its 3.1% dividend yield, however, looks like a glittering consideration for investors interested in increasing their passive income stream.

After setting a goal in 2019 to shore up its financial position, Yamana Gold has succeeded in lowering its debt and deleveraging. In the third quarter of 2021, Yamana reduced its debt by $222 million, which helped it to achieve a net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio of 0.3. This secure financial position paired with the fact that the company is generating strong free cash flow -- it grew 59% from the second quarter to the third quarter -- suggests that the company's well positioned to continue returning capital to shareholders. On the company's Q3 2021 conference call, for example, Daniel Racine, the company's CEO, addressed this fact stating that Yamana's "[b]alance sheet is pristine. So we can afford giving more dividends, buying back more shares, and then continue to invest, if needed, more in Canadian Malartic." Located in Quebec, Canadian Malartic, in which Yamana has a 50% ownership stake, is Canada's largest gold-producing project and Yamana's biggest gold-producing asset.

Since the price of gold is bound to experience some ups and downs, it's hard to imagine that Yamana Gold will steadily raise its dividend in each of the coming years. Nonetheless, gaining some exposure in your portfolio with an industry-leading gold stock is a worthwhile consideration -- one that is especially timely now. Changing hands at 5.5 times operating cash flow, Yamana's stock is on the discount rack, trading at a discount to its five-year average ratio of 6.3.

Kinder Morgan has transformed itself into a premier dividend stock

Daniel Foelber (Kinder Morgan): Energy transportation and storage company Kinder Morgan has long underperformed the U.S. stock market as investors favor growth over stalwarts. Yet Kinder Morgan has quietly revolutionized its business since the oil and gas crash of 2014 and 2015, and the market may finally be taking notice.

Kinder Morgan released expectations for its 2022 financial performance before it has even reported its full-year 2021 results. The forecast included higher earnings per share, EBITDA, up to $750 million in share buybacks, and a $1.11 annualized dividend, up from 2021's $1.08 annualized dividend. At a current price of $17.17 per share, Kinder Morgan's forward dividend yield is 6.5% -- which makes it one of the highest yielding S&P 500 components.

What's more, Kinder Morgan projects it will earn $1.09 in EPS and $2.07 in distributable cash flow (DCF) per share, meaning it can cover its dividend obligation with cash. Kinder Morgan also said it expects to end this year with a net debt-to-adjusted EBITDA ratio of 4.3. Kinder Morgan's net income tends to vary, so EBITDA and DCF are the preferred metrics it uses to judge its performance and financial health. Guidance for a 4.3 ratio is below its long-term target of 4.5. For context, Kinder Morgan ended 2020 with a 4.6 debt-to-EBITDA ratio, cut it down to 3.8 at the end of the first half of 2021, and expects to finish 2021 with a ratio of 4. 

In sum, Kinder Morgan is growing its dividend and earnings while maintaining a healthy balance sheet, a sign that it isn't overspending during the current healthy oil and gas climate.

High yields tend to require a baseline amount of risk. But Kinder Morgan has a track record for accurate guidance thanks to much of its business being contracted under long-term obligations. Kinder Morgan stands out as an option worth considering for investors looking for a great income stock for 2022.

Autoliv is well set for a recovery in 2022

Lee Samaha (Autoliv): It's been a challenging couple of years for automakers and their suppliers like Autoliv. First, the COVID-19 pandemic hit the sector hard. Next, the economic slowdown initially hit vehicle sales, and then when demand recovered, it became increasingly difficult to keep production flowing due to the pandemic. Meanwhile, the shift in consumer spending patterns created by the stay-at-home measures resulted in a semiconductor shortage that ultimately restricted production.

According to industry observers, global light vehicle production will increase by slightly more than 1% in 2021. However, industry observers are expecting high-single-digit growth in production in 2022, and that means it's time to start looking at the auto parts suppliers

As such, the case for buying Autoliv for 2022 doesn't just rest on its 2.4% dividend yield. First, as a leading provider of seatbelts, airbags, and safety wheels, Autoliv is a beneficiary of increased light vehicle production -- Wall Street analysts have the company's sales rising 15% in 2022.

Second, management believes it can grow more than the market due to market share gains and an increase in content per vehicle driven by the increasing importance of safety to consumers.

Third, management has done an excellent job in offsetting margin pressure from lower production volumes and raw material cost increases from 2019 to 2021. Those measures, and hopefully mitigation of cost inflation, could lead to substantial margin expansion in the coming years.

All told, Autoliv is well positioned to benefit from a multi-year recovery in the auto industry starting in 2022.

Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool owns and recommends Kinder Morgan. The Motley Fool has a disclosure policy.

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