The U.S. market is exhibiting heightened volatility amid inflationary pressures and the Fed’s interest rate hikes. This is evident in the CBOE Volatility Index’s 46.1% year-to-date gains. Furthermore, a solid May jobs report eliminated expectations of a pause in the central bank’s aggressive policy tightening. “It's telling us the economy is in fairly good shape, which is good news, but when viewed in the context of what it means for the Federal Reserve and tightening monetary policy, it likely makes them more confident they can continue to tighten," said Shawn Snyder, head of the investment strategy at Citi Personal Wealth Management.
Given the market fluctuations and rising investor’ worries, investors are likely to invest in attractive, dividend-paying stocks to hedge their portfolios. Indeed, the SPDR S&P Global Dividend ETF (WDIV) has gained 2.2% over the past month.
So we think fundamentally sound dividend stocks of Telefonaktiebolaget LM Ericsson (publ)(ERIC), Signet Jewelers Limited (SIG), Volkswagen AG (VWAGY), Stellantis N.V. (STLA), and Covestro AG (COVTY) could help generate a steady portfolio income stream amid the market uncertainties. Also, these stocks look undervalued at their current price levels.
Telefonaktiebolaget LM Ericsson (publ)(ERIC)
Headquartered in Stockholm, Sweden, ERIC and its subsidiaries provide communication infrastructure, services, and software solutions to telecom and other sectors. The company operates through four segments: Networks; Digital Services; Managed Services; and Emerging Business and Other.
On May 31, 2022, ERIC and BT, the two major European telecom groups, announced their lucrative collaboration and hefty investment strategies to provide highly efficient private 5G network solutions to U.K. companies. The duo aims to hit the bull’s eye in the emerging 5G business with glitch-free, sustainable, and super speed connections amid rapid digitalization.
ERIC has been paying dividends for 17 consecutive years. Its dividend payouts have grown at a 31.8% CAGR over the past three years. Its four-year average yield is 1.47%, while its current dividend yield is 3.25%.
For the quarter ended March 31, 2022, ERIC’s net sales increased 10.6% year-over-year to SEK55.06 billion ($5.60 billion). Its gross income came in at SEK23.29 billion ($2.39 billion), up 9.4% year-over-year. Also, its cash and cash equivalents were SEK76.86 billion ($7.88 billion), up 89.6% year-over-year.
In terms of forward EV/S, ERIC’s 0.91x is 68.8% lower than the 2.91x industry average. The stock’s 1.07x forward P/S is 63.7% lower than the 2.95x industry average.
ERIC’s revenue is expected to come in at $27.18 billion in 2023, representing a 2.2% year-over-year rise. In addition, the company’s EPS is expected to increase 11.8% to $0.85 in 2023. The stock has declined 24.5% year-to-date to close Friday’s trading session at $8.21.
ERIC’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has an A grade for Value and a B grade for Stability and Quality. ERIC is ranked #3 of 54 stocks in the Technology - Communication/Networking industry. Click here to see the additional POWR Ratings for ERIC (Growth, Momentum, and Sentiment).
Signet Jewelers Limited (SIG)
Based in Hamilton, Bermuda, SIG is a diamond jewelry retailer. It operates through three segments–North America; International; and Other. The company is the world's largest retailer of diamond jewelry and employs approximately 2,800 stores.
On March 17, 2022, SIG’s CEO, Virginia C. Drosos, said, “We're confident in the sustainable competitive advantages we've built and our ability to leverage our enhanced infrastructure and scale to continue growing ahead of the jewelry industry.”
SIG’s four-year average yield is 3.76%, while its current dividend translates to a 1.28% yield.
SIG’s sales have increased 28.6% year-over-year to $2.81 billion for its fourth fiscal quarter, ended Jan. 29, 2022. The company’s non-GAAP operating income came in at $411 million, up 39.9% year-over-year. Its non-GAAP EPS was $5.01, up 20.7% year-over-year.
SIG’s 0.47x forward EV/S is 57.3% lower than the 1.11x industry average. Its 0.39x forward P/S is 57% lower than the 0.91x industry average.
For its fiscal 2023, analysts expect SIG’s revenue to be $7.99 billion, representing a 2.1% year-over-year rise. The company’s EPS is expected to grow 7% per annum for the next five years. It surpassed EPS estimates in each of the three trailing quarters. The stock has declined 28.1% in price year-to-date to close Friday’s trading session at $62.61.
SIG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Ratings system.
Also, the stock has an A grade for Quality and a B grade for Value. Within the B-rated Fashion & Luxury industry, it is ranked #14 of 68 stocks. Click here to see the additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for SIG.
Volkswagen AG (VWAGY)
Based in Wolfsburg, Germany, VWAGY manufactures and sells automobiles, primarily in Europe, North America, South America, and the Asia-Pacific. The company operates in four segments–Passenger Cars and Light Commercial Vehicles; Commercial Vehicles; Power Engineering; and Financial Services.
On May 4, 2022, CEO Herbert Diess said, “As a truly global company, we have extensive production capacities in all major growth and sales markets worldwide. Volkswagen’s global set up helped us to mitigate many of the adverse effects we are currently seeing.”
VWAGY’s four-year average yield is 1.94%, while its current dividend yield is 6%.
VWAGY’s sales revenue came in at €62.74 billion ($67.33 billion) for the first quarter ended March 31, 2022, compared to €62.38 billion ($66.93 billion) in the year-ago period. Its earnings after tax came in at €6.72 billion ($7.21 billion), up 97% year-over-year, while its EPS was €13.05, up 102.3% year-over-year.
Analysts expect VWAGY’s revenue to increase 9.3% year-over-year to $312.35 billion in 2023. Its EPS is estimated to increase 8% year-over-year to $3.78 in 2022. The stock has declined 22.9% year-to-date to close Friday’s trading session at $22.52.
VWAGY has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Value and a B grade for Stability and Quality.
Click here to see the additional POWR Ratings for VWAGY (Growth, Momentum, and Sentiment). It is ranked #13 of 67 stocks in the Auto & Vehicle Manufacturers industry.
Click here to check out our Automotive Industry Report for 2022
Stellantis N.V. (STLA)
Headquartered in Hoofddorp, the Netherlands, STLA designs, engineers, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide.
On May 30, 2022, STLA and Toyota Motor Europe N.V. agreed to expand their partnership with an agreement to produce a new large-size commercial van, with a battery-electric version. This collaboration is expected to help the companies strengthen their position in the global light commercial vehicle industry.
STLA’s dividend payouts have grown at a 17.3% CAGR over the past three years. Its four-year average yield is 9.24%, while its current dividend translates to a 7.59% yield.
For its 2022 first quarter, STLA’s net revenues increased 12% year-over-year to €41.50 billion ($44.59 billion). The company’s Enlarged Europe BEV sales increased more than 50% year-over-year. Furthermore, its North America net revenues came in at €20.69 billion ($22.23 billion), up 30% year-over-year, while its South America net revenues came in at €2.95 billion ($3.17 billion), up 40.2% year-over-year.
In terms of forward EV/S, STLA’s 0.16x is 85.7% lower than the 1.11x industry average. Its 0.25x forward P/S is 71.9% lower than the 0.91x industry average.
STLA’s revenue is expected to increase 6% year-over-year to $182.18 billion for its fiscal year ending Dec. 31, 2022. The stock has declined 21.2% in price year-to-date to close Friday’s session at $14.79.
STLA has an overall B rating, which equates to Buy in our POWR Ratings system.
It has an A grade for Value. Click here to check additional ratings for STLA (Growth, Momentum, Stability, Sentiment, and Quality). STLA is ranked #8 of 67 stocks in the Auto & Vehicle Manufacturers industry.
Click here to check out our Automotive Industry Report for 2022
Covestro AG (COVTY)
Headquartered in Leverkusen, Germany, COVTY supplies high-tech polymer materials and related application solutions. It operates in two segments: Performance Materials; and Solutions & Specialties.
Over the last three years, COVTY’s dividend payouts have grown at a 10.3% CAGR. While its four-year average dividend yield is 3.91%, its current dividend translates to a 7.74% yield.
COVTY’s sales increased 41.6% year-over-year to €4.68 billion ($5.03 billion) for the first quarter, ended March 31, 2022. Its EBIT came in at €589 million ($633.04 million), up 5.9% year-over-year, while its EPS was €2.15, up 5.9% year-over-year.
COVTY’s 0.58x forward EV/S is 62.1% lower than the 1.53x industry average. Its 0.47x forward P/S is 63.4% lower than the 1.28x industry average.
Analysts expect COVTY’s revenue to increase 8% year-over-year to $19.11 billion for its fiscal year ending Dec. 31, 2022. The stock has retreated 24.1% in price year-to-date to close Friday’s trading session at $23.45.
COVTY has an overall B rating, which indicates a Buy in our proprietary rating system.
COVTY has an A grade for Value and a B grade for Stability and Quality. Within the Chemicals industry, it is ranked #20 of 91 stocks. Click here to see the additional POWR Rating for Growth, Momentum, and Sentiment for COVTY.
ERIC shares were trading at $8.27 per share on Monday morning, up $0.06 (+0.73%). Year-to-date, ERIC has declined -23.19%, versus a -12.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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