Mounting concerns of a possible recession have resulted in a difficult start to the year for financial markets. This helps to explain why the S&P 500 index has dipped 14% year-to-date.
As investors have shifted from growth stocks to value stocks, this has led high-yielding dividend stocks to perform well so far this year. But even with the huge rally in this sector, there are still stocks out there that look like solid picks. Here are three picks for investors looking for steady passive income.
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1. Philip Morris International
With 71,000 employees and more than 175 markets where its cigarettes and non-combustible products (i.e., heat-not-burn product called IQOS) are sold, Philip Morris International (PM 1.39%) is the largest tobacco company in the world.
Cigarette volumes have been falling in most markets for years now. But thanks to Philip Morris International's launch of IQOS in 2014, the company's shipment volumes are consistently growing. For instance, its total volumes grew 3.5% year-over-year to 173.1 billion units in the first quarter.
The company's forays into reduced-risk products like IQOS explain why analysts are forecasting 4% annual earnings growth over the next five years. Philip Morris International's dividend payout ratio will be around 90% in 2022, which is higher than it typically has been due to the discontinuation of operations in Russia and Ukraine. But since Philip Morris' capital expenditures are low as a tobacco company, the 4.7% dividend yield appears to be safe.
Even with the stock's share price surging 11% year-to-date, it still seems to be a good blue-chip buy. That's because its forward price-to-earnings (P/E) ratio of 19.2 is still lower than the consumer staples sector average of 20.4.
2. Enterprise Products Partners
Love it or hate it, fossil fuels will continue to play a significant role in the world for the foreseeable future. This is because natural gas and refined products are critical in powering and heating homes, and are used in the production of fertilizers and most consumer goods.
That's why midstream company Enterprise Products Partners (EPD 0.48%) should remain at the forefront of global economic growth. The company boasts over 50,000 miles of pipelines to transfer natural gas, petrochemicals, and crude oil, and numerous facilities to store those fossil fuels for its customers.
This outlook for gradually growing global fossil fuel demand should translate into low-single-digit, annual, distributable cash flow growth for Enterprise Products Partners in the years ahead. And the company's distribution coverage ratio of 1.8 in the first quarter of this year should give Enterprise Products Partners the ability to extend its 23-year distribution growth streak. That's why the stock's monstrous 6.6% distribution yield looks sustainable.
Despite Enterprise Products Partners' 24% gains so far this year, the stock is priced at a trailing 12-month price-to-distributable-cash-flow ratio of just 9.1.
3. American Electric Power
What's more necessary than reliable access to electricity? Of course, this is a rhetorical question, because there are few goods or services more essential to society than electricity.
With a $52.3 billion market capitalization, American Electric Power (AEP 0.95%) is the 11th biggest publicly traded electric utility on the planet. As the company continues to build out its electric generation and transmission infrastructure, its customer base will expand. Analysts expect that this will lead to 6.2% annual earnings growth over the next five years.
And don't let American Electric Power's listing on the tech-heavy, low-dividend yield Nasdaq Composite fool you; this electric utility pays a market-beating 3.1% dividend to its shareholders. American Electric Power's dividend payout ratio stands at 63%, which should enable the dividend to grow as fast as its earnings.
In spite of the electric utility's 15% year-to-date share price appreciation, its forward P/E ratio of 20.4 is just below the S&P 500 utility sector average of 20.7, providing an opportunity for investors.
