Dividend stocks that can withstand the triple threat of an economic recession, high inflation, and rising interest rates are a solid choice for investors right now. The global economy, after all, is forecast to slow at a moderate pace in 2023, which is likely to negatively impact corporate earnings, free cash flows, and shareholder rewards programs.
Which dividend stocks can investors count on for a steady income stream in 2023 and beyond? ConocoPhillips (COP 0.39%) and Merck (MRK -0.05%) are two recession-proof dividend stocks that ought to deliver solid returns on capital during this volatile period in the market, along with dependable quarterly dividend payments. Read on to find out more about these top dividend stocks.
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1. ConocoPhillips
Oil and gas giant ConocoPhillips is an ultra-safe passive income vehicle for multiple reasons. First off, the company has laid out a 10-year plan centering around restrained capital allocation, improved financial results, and sizable shareholder rewards (dividends and share buybacks).
As a result of this strategy, ConocoPhillips ought to be able sustain its current dividend program even if crude falls to $40 a barrel in the future. Underscoring this point, the company's 12-month trailing dividend payout ratio presently stands at a mere 24.6%, which is rock bottom for a large-cap oil and gas stock. This payout ratio is particularly impressive in light of the fact that its annualized dividend yield came out to 3.95% over the prior 12-month period.
Second, ConocoPhillips stock is attractively valued at current levels. Even though its shares rose by a healthy 24.5% over the prior 12-month period, the company's stock is presently trading at approximately 2 times 2024 estimated sales. To put this valuation metric into the proper context, the average price-to-sales ratio within the oil and gas industry is 3.1.
Lastly, the oil and gas titan sports a rock-solid balance sheet. Despite investing heavily in an emissions reduction program, ConocoPhillips has a fairly low debt-to-equity ratio of 34.6. Therefore, investors do not have to worry about a possible debt overhang with this top dividend stock. The same can't be said for many of the company's closest oil and gas peers.
2. Merck
Pharmaceutical titan Merck is a stellar passive income vehicle in this uncertain economic environment. Despite a slowdown in its COVID-19 franchise, Merck is still expected to grow annual sales by nearly 6% next year. The pharma giant's top-selling cancer therapy, Keytruda, and its human papillomavirus vaccine, Gardasil, ought to more than offset sales in declining franchises like COVID-19.
What's more, Merck sports a slightly above-average dividend yield (for a large-cap stock) of 2.69% at current levels. The drugmaker's dividend program is also well supported by its hefty free cash flows, evinced by its fairly modest 12-month trailing payout ratio of 49%. Longer-term, Merck ought to be able to grow its dividend at reasonable levels on an annual basis, thanks to its top-flight clinical pipeline.
Although the company's late- and early-stage pipeline do carry a fair amount of risk, Wall Street analysts expect its research and development efforts to eventually yield multiple blockbuster products in cancer and cardiovascular disease in the coming years. Merck, in turn, should be able to deliver stable returns on capital and steady quarterly payouts for shareholders for the foreseeable future.
