Berkshire Hathaway, led by CEO Warren Buffett, recently hit a record valuation. Even more impressive, the company has achieved this feat even with the S&P 500 index down roughly 5% across 2022's trading and the Nasdaq Composite index down roughly 10.5% across the stretch.
As impressive as the investment conglomerate's performance has been, investors may be able to achieve better performance going forward by backing individual, dividend-paying stocks that have lost some ground, instead of buying Berkshire at its high. Read on to see why a panel of Motley Fool contributors identified Clorox (CLX 1.41%), Starbucks (SBUX -0.35%), and ASML Holding (ASML 3.38%) as top dividend stocks to buy right now.
Image source: The Motley Fool.
Cleaning up while helping the world clean up
James Brumley (Clorox): Clorox was all the rage back in the first half of 2020, when the world was doing anything and everything it could to keep homes and businesses disinfected. But that love affair wasn't built to last. This stock has slipped an incredible 40% from its mid-2020 peak, and is still within reach of new 52-week lows. The post-pandemic slowdown and rising costs are really taking a toll.
The sellers, however, may have overshot their target.
While commodity inflation is making things difficult across the board, it's making matters difficult for all consumer goods companies and their customers. But consumers still need bleach, charcoal, salad dressing, and lip balm, regardless of their price. Clorox sells all of it and more, supporting what's evolved into a healthy dividend yield of 3.4%.
And it's not like higher costs or consumers balking at higher prices poses any real threat to this company's payout. Last year's dividend payments amounted to $4.55 per share, but Clorox earned $7.25 per share. That leaves plenty of wiggle room for even the most unexpected of temporary challenges.
A solid dividend stock with growth opportunities
Daniel Foelber (Starbucks): The best buying opportunities in the stock market tend to be when a great company's stock sells off for what appear to be short-term challenges. Starbucks is in this sweet spot right now.
The last few years have been challenging for Starbucks, and the data shows it. Starbucks stock has only produced a 69% total return over the last five years compared to 111% for the S&P 500 and 155% for the Nasdaq Composite.
Starbucks was hit hard by the U.S.-China trade war that reached a tipping point in 2018. China is Starbucks' second-largest market. It finished Q1 fiscal 2022 with over 5,500 stores in China, which accounted for 16% of total stores.
Just 15 months later, Starbucks was crushed by the COVID-19 pandemic. Starbucks depends on people commuting to work, traveling, or just going out and doing things. And it's still recovering from the effects of the pandemic.
Fast-forward to today, and Starbucks has been sensitive to inflation. Its solution has been to pass along those costs to customers through price increases. It's also dealing with paying employees more and the threat of unionization.
Despite hitting an all-time high in July 2021, Starbucks has never really been able to plant its feet and gain momentum. And that makes it a difficult company to invest in right now.
However, zooming out, Starbucks is one of the most powerful brands in the world and has a clear path toward growing its business for decades to come. Starbucks has done an excellent job building its rewards program, encouraging mobile paying and grab-and-go transactions that allow it to step up sales. It is generating more revenue per transaction as folks gravitate toward customized drinks and include more food pairings with their drinks. Starbucks' growth can come from opening more stores. But same-store comps have a lot of runway too, especially as Starbucks converts a higher portion of its stores to include drive-thrus.
Add on the fact that the stock is down 31% from its high, has a price-to-earnings ratio of just 23, and has a 2.3% dividend yield, and you have a compelling long-term investment opportunity.
Cash in on chip demand with this pick-and-shovel play
Keith Noonan (ASML Holding): For investors seeking big yield, ASML's current payout may not be satisfactory. The stock currently yields just 0.6%, but it could prove to be a dividend-growth investor's dream. ASML doubled its payout last year, and the company's sturdy business and encouraging long-term growth potential point to big upside for patient shareholders.
ASML makes semiconductor equipment that helps companies manufacture chips. The semiconductor shortage over the last year has highlighted the fact that everything from mobile devices to cars and refrigerators now rely on chips to function, and these components will only become increasingly central from here on out.
ASML's revenue rose 33% annually in 2021, and the company's fourth-quarter bookings climbed 66% year over year. Even better, the business is posting strong margins, with a gross margin of roughly 54% in Q4 and a net margin of 36% in the period.
With the company valued at roughly 37 times this year's expected earnings and 10 times this year's expected sales, ASML's valuation levels might also look somewhat risky in the context of recent market volatility and waning appetite for stocks that trade at growth-dependent multiples. On the other hand, shares trade down roughly 23% from their high, and you'd be hard pressed to find tech businesses with stronger industry positioning and sturdier growth outlooks. ASML's proprietary technology gives it a strong moat, a characteristic prized by Buffett, and I expect that shares purchased at today's prices will deliver strong capital appreciation and much bigger yield down the line.
