The U.S. stock market has been on a wild ride so far in 2022. Despite an up month in March, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average had their worst quarter in the first quarter of 2022 since Q1 2020.
Investors looking for quality businesses that can outlast a prolonged sideways market have come to the right place. Stanley Black & Decker (SWK), Sherwin-Williams (SHW -1.10%), and Genuine Parts Company (GPC 1.35%) are three Dividend Aristocrats that are begging to be bought in April. A Dividend Aristocrat is an S&P 500 component that has paid and raised its dividend for at least 25 consecutive years. Here's what makes each business worth a look.
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Stanley Black & Decker could be an excellent value opportunity
Lee Samaha (Stanley Black & Decker): Unfortunately, the investment case for the tools, storage, and industrial products maker has taken a hit in 2022.
This was supposed to be the year when the company enjoyed a margin recovery as cost and supply chain pressures eased through the year. In addition, a recovery in automotive production was supposed to lead to upside potential for its industrial products segment. Meanwhile, the company's integration of lawn and garden equipment company MTD was seen as a game-changing opportunity to grow earnings by boosting the company's revenue and earnings margin as part of Stanley Black & Decker.
It's a compelling investment case, but unfortunately, the conflict in Ukraine and its impact on raw material costs has come at precisely the wrong time. Whereas investors were looking forward to the potential upside from falling costs, they are now looking at rising cost pressures again. Everything points to pressure on Stanley's 2022 outlook, and investors should not be surprised if management lowers full-year estimates when it gives results on April 28.
That said, the long-term case for the stock remains a powerful one, and any significant further sell-off should lead to investors taking a serious look at the stock. The MTD acquisition makes sense; raw material cost inflation won't go up forever; and Stanley's margins will surely expand in the future.
Paint your portfolio with passive income
Daniel Foelber (Sherwin-Williams): Share prices of Sherwin-Williams have not exactly had a great year so far in 2022. The stock hit its all-time intraday high on Dec. 30 at $354.15. And since then, it is down 30%. The sell-off seems to have more to do with where Sherwin-Williams' business could be headed than where it has been.
For context, Sherwin-Williams was one of the few industrial companies that performed very well since the onset of the pandemic. Despite a slowdown in its commercial and industrial paint and coatings segments, the company benefited from folks pursuing do-it-yourself projects at home, as well as a booming housing market that bolsters renovations on existing homes and demand for paint on new buildings. However, the company's consumer brands segment faced difficult comps in 2021, which contributed to net income being down year over year despite revenue being up.
Further headwinds are taking form in 2022 as there are some glaring signals that the housing market is about to cool off. Housing prices are at an all-time high, and 30-year mortgage interest rates are now at a four-year high -- two factors which cast a wet blanket over housing demand.
This is more of an issue for companies like Home Depot and Lowe's than it is for Sherwin-Williams. But if the housing market does cool off, it will undoubtedly be a net negative for Sherwin-Williams' bottom line.
That being said, Sherwin-Williams is a diversified company that doesn't depend on one end market to be successful. This resilience is demonstrated in the long-term performance of the business. Over the last 20 years, Sherwin-Williams has never reported an annual loss.
SHW Revenue (Annual) data by YCharts,
Its earnings did slow down during the years following the housing crisis. But that didn't stop the company from affording its dividend, let alone resuming its torrid long-term growth rate in the years that followed.
Sherwin-Williams may not have the highest yield of the Dividend Aristocrats. But it is an industry-leading company with a proven track record throughout economic expansions and contractions. For that reason, Sherwin-Williams looks like a great buy now.
A noble choice to drive passive income
Scott Levine (Genuine Parts): Looking for a quality dividend stock to park in your portfolio? For 65 years, Genuine Parts has been returning cash to shareholders, making it one of the oldest Dividend Aristocrats. Investors, who have driven past the stock in the past and don't count it among their holdings, are in luck right now. Offering investors a 2.8% forward dividend yield, shares of Genuine Parts are currently on sale. The stock is trading at 20.2 times trailing earnings, representing a discount to its five-year average multiple of 74.9 and the earnings multiple of the S&P 500: 25.8.
Genuine Parts is coming off a strong performance in 2021 -- a year in which it grew revenue 14.1% year over year and set a company record for earnings per share (EPS) at $6.23. According to the company, the road ahead will be one of further growth. Management forecasts sales growth of 9% to 11%, driven largely by an expected 20% to 22% rise in revenue for the industrial segment, which specializes in mechanical and fluid power transmission equipment, material handling components, and related parts and supplies. On the bottom line, management projects EPS of $7.45 to $7.60. Should the company achieve the midpoint of this guidance, it will represent year-over-year growth of 30%. But it's not only the income statement where management sees growth. Free cash flow is expected to rise from $1 billion in 2021 to approximately $1.3 billion in 2022.
Cautious investors who may worry about the company's ability to sustain its dividend need not worry too much. Excluding 2020 when it reported a net loss, Genuine Parts has averaged a payout ratio of 54%. The company's dividend is also well-covered by free cash flow. In 2021, for example, Genuine Parts generated free cash flow of $9.65 per share and paid out dividends of $3.26 per share.
