There's a fine line between conviction grounded in fundamentals and unsupported hope that a stock will recover just because you want it to. Holding on through periods of volatility is simply the price of admission for compounding your wealth over time in the stock market. The issue is that many investors either sell stocks at bargain prices during bear markets or are too hesitant to continue putting new savings to work when the market keeps falling.
Establishing conviction is different for everyone. But it's certainly easier to be confident when a business is established and has a track record for overcoming past downturns. Air Products and Chemicals (APD -0.59%), United Parcel Service (UPS 0.02%), and nVent Electric (NVT 0.13%) are well-known businesses and trusted brands. Here's what makes each dividend stock a great buy now.
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Air Products is an industrial gases stalwart that's committed to rewarding investors
Scott Levine (Air Products and Chemicals): Feeling rattled after suffering through the volatility of 2022? You're far from alone. For younger investors, this may have been one of the most challenging years they've experienced in the market, and for older investors, it may have summoned memories of 2008 or earlier downturns. Fortunately, however, there are resilient stocks that can fortify your portfolio in difficult periods. Air Products, for example, is an industry stalwart that currently offers a 2.1% forward dividend yield.
Air Products' offerings play a critical role in the success of businesses covering a wide swath of industries. It provides various industrial gases, as well as essential equipment to assist in the operations of companies in industries ranging from biotech to oil refining to food and beverage.
The company may not be a household name for consumers, but income investors may well be familiar with it. For 40 straight years, Air Products has hiked its dividends, demonstrating a steadfast commitment to rewarding shareholders. And the increases haven't been nominal. From 2014 through 2022, it boosted its payouts at a compound annual rate of 10%.
Some skeptics may question whether that dedication to the dividend has jeopardized the company's financial well-being. A look at the payout ratio suggests that this isn't the case. Over the past five years, Air Products has averaged a fairly conservative 62.6% payout ratio.
Trading at 27.3 times forward earnings, this stock isn't on the discount rack, but that shouldn't deter investors from clicking the buy button. Air Products is a compelling choice to buttress one's portfolio and simultaneously provide some passive income.
UPS has the makings of a stock worth owning forever
Daniel Foelber (UPS): The macroeconomic forecast for UPS isn't ideal. But the company's now-much-larger dividend offers a compelling reason to hold the stock for the long term.
After management raised the dividend by 49% back in February, UPS's quarterly payout is $1.52 per share. The dividend is up 67% in the last three years and 145% in the last 10 years. And UPS has never cut its dividend since it went public in 1999.
Since the three-month Treasury bond yield is now 4.2%, investors need more than just a high yield to compensate them for the risks of investing in a stock. UPS has a dividend yield of 3.4% -- which is pretty good. But its industry leadership and high margins are even better reasons to own the stock.
For a stock to be a high-conviction investment, the company must have an edge when it comes to management and execution. And few companies have executed better than UPS in recent years. It's on track to post record revenue and 10-year high operating margins for 2022 -- and that's coming off strong results in 2021 and 2020.
It wasn't long ago that investors were fretting that UPS might be losing its relevance due to the growing elephant in the room -- Amazon (AMZN -2.56%). UPS has reduced Amazon delivery volumes as a percentage of its total deliveries in an effort to become less dependent on the e-commerce behemoth. But the companies continue to have a good partnership, as Amazon relies heavily on UPS for two-day deliveries and returns.
In sum, UPS has proved it has a truly unrivaled role to play in the package delivery industry. Trading at an inexpensive valuation and offering an attractive dividend yield, UPS stands out as a great stock to own for 2023.
Electrification is a tremendous long-term trend to invest in
Lee Samaha (nVent): The company makes connection and protection products used in electrical installations. As such, its products are used across a wide range of industries, from commercial buildings to electric vehicle charging networks, data centers, industrial facilities, and utilities. Where you need electrical installations, you need the enclosures, fastening, and thermal management solutions sold by nVent, not least to ensure regulatory compliance.
It's a fortunate situation to be in, because the world is (pardon the cliche) electrifying. Whether it's electric vehicles, industrial automation, smart buildings and infrastructure, data centers, or simply the growth in wireless technology, the trend is toward electrification.
The strength of that trend is reflected in nVent's 2022 growth. Management started the year expecting organic sales growth of 6% to 9%, only to end up forecasting growth of 18% to 19%, and it's hard to believe the stock is barely in positive territory for 2022 at the time of this writing.
We can expect nVent's growth rate to slow from this torrid pace, but the trend toward electrification remains in place. With the stock trading at slightly over 15 times its 2023 earnings estimates and sporting a 1.8% dividend yield, I think it remains worth buying.
