Dividend stocks can be particularly attractive investments to own during periods of economic uncertainty. Their regular payouts can both provide recurring cash flow and help offset the impact of share price declines that hit your portfolio during a bear market.
For a couple of income-generating stocks that are not only paying better yields than the S&P 500's 1.3% average, but are also on sale at cheap valuations, consider Medtronic (MDT -0.04%) and Anheuser-Busch InBev (BUD 0.62%).
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1. Medtronic
At its current share price, medical device company Medtronic pays a dividend that yields 2.3% annually. But investors have been down on the stock lately because the company needs hospitals to be operating normally for demand for its products to be strong. When it released its fiscal third-quarter 2022 earnings on Feb. 22, its sales for the period (which ended Jan. 28) totaled $7.8 billion -- flat from the prior-year period. (It did report organic growth of 2%, but that was offset by negative impacts from changes in foreign currency exchange rates.) More than half of the company's revenue (51%) comes from the U.S. market, and so what happens domestically has a significant impact on its financials.
Management put the blame for the disappointing fiscal Q3 numbers on the steep omicron variant surge. But CEO Geoff Martha was also optimistic, saying, "we expect healthcare procedures to reaccelerate post-omicron, and our commitment to durable and higher growth remains steadfast." For the fiscal fourth quarter, Medtronic anticipates its organic growth will rise to 5.5%.
The company has a broad portfolio of products that address needs in indications that include diabetes, neuroscience, surgical, and cardiovascular. That diversity should give it many opportunities to generate growth this year if hospitals largely get back to operating normally this year, which at this point looks likely to happen as COVID-19 cases -- and hospitalizations for the coronavirus -- decline.
However, investors remain bearish on the stock, which isn't much above its 52-week low of $98.38. In the past six months, its shares have fallen 20% while the S&P 500 has declined by 6%. At a forward price-to-earnings (P/E) ratio of 19, Medtronic is cheap compared to many other healthcare stocks; shares of Abbott Laboratories and Eli Lilly are trading at 24 and 30 times their future earnings, respectively.
2. Anheuser-Busch InBev
Another good recovery stock to own is Anheuser-Busch InBev. The world's biggest beer brewer dipped to a new 52-week low this week. Its recent declines haven't been as steep as Medtronic's -- the stock is only down 10% over the past six months. However, the stock also hasn't traded at a lower level since November 2020.
On Feb. 24, the company released its fourth-quarter earnings. Revenue was up 12.1% year over year, volumes rose by 3.6%. and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose by 5%.
In 2021, it sold 582 million hectoliters of adult beverages (about 15.4 billion gallons), a record high for AB-InBev. The company has more than recovered from the drop in sales that accompanied the onset of the pandemic. And given that social events will likely be on the rise this year, there's plenty of reason to remain bullish about AB-InBev's prospects.
Its forward P/E ratio is less than 17 -- low compared with smaller rival Boston Beer, which trades at more than 25 times its future earnings. And AB-InBev stock also pays an above-average dividend that at current share prices yields 2.1%. Between the discounted share price and the better-than-average payout, investors have multiple ways to profit from this stellar business, which over the past five years has consistently reported profits.
