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3 Stocks That Are Great for Passive Income Investors

Though the U.S. economy bounced back after shrinking in the first half of the year, falling consumer spending and the rate hikes to tame high inflation might lead the economy into a recession. Hence, investors looking for passive income could invest in fundamentally sound dividend-paying stocks Pfizer (PFE), Sanofi (SNY), and Karooooo (KARO). Read more...

The U.S. Gross domestic product rose by an annualized rate of 2.6% during the third quarter, according to initial estimates released by the Bureau of Economic Analysis. While the economic growth underscores that the United States is not currently in a recession, economists cautioned that the latest GDP report doesn’t mean one isn’t looming.

Although consumer spending grew by 1.4% on an annualized basis in the third quarter, it is down from the first two quarters, meaning consumer spending is starting to soften. Moreover, the Fed is widely expected to continue its aggressive rate hikes to tame sky-high inflation that rose 8.2% in September, with the core Consumer Price Index up 6.6%.

On the other hand, economists polled by Reuters once again cut growth forecasts for key economies as central banks continue their rate hikes to fight inflation, indicating the risk of a global recession. Regarding the possibility of a downturn, Michael Every, global strategist at Rabobank, said, “I think that’s pretty much a no-brainer when you look at the trend in all the key economies.”

Given this backdrop, fundamentally strong dividend-paying stocks Pfizer Inc. (PFE), Sanofi (SNY), and Karooooo Ltd. (KARO) might be great buys for passive income investors now.

Pfizer Inc. (PFE)

PFE discovers, develops, manufactures, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas. The company serves wholesalers, retailers, hospitals, clinics, government agencies, as well as disease control and prevention centers.  

On October 20, PFE and Erasca, Inc. (ERAS) announced a clinical trial collaboration and supply agreement for the CDK4/6 inhibitor palbociclib. This agreement will support a clinical proof-of-concept study evaluating ERAS-007, an oral ERK1/2 inhibitor, in combination with palbociclib for treating patients with KRAS- and NRAS-mutant colorectal cancer (CRC) and KRAS-mutant pancreatic ductal adenocarcinoma (PDAC). The diversification might bolster the revenue stream of the company.

On October 5, PFE announced that it had completed the acquisition of Global Blood Therapeutics, Inc. (GBT), a biopharmaceutical company that deals with sickle cell disease (SCD). The acquisition reinforces Pfizer’s commitment to SCD, building on a 30-year legacy in the rare hematology space.

On September 22, PFE declared a quarterly dividend of $0.40 per share on its common stock, which is payable to shareholders on December 5. Its annual dividend of $1.60 yields 3.47% on current prices. The company’s dividend payouts have increased at a 5.7% CAGR over the past three years and a 5.9% CAGR over the past five years. The company has a record of 11 years of consecutive dividend growth. 

In the second quarter ended July 3, PFE’s revenue increased 46.8% year-over-year to $27.74 billion. Its income from continuing operations grew 69.6% from the year-ago value to $9.88 billion, while its adjusted income improved 93.5% year-over-year to $11.66 billion. The company’s adjusted earnings per common share increased 92.5% from its year-ago value to $2.04.  

Streets expect PFE’s EPS for the current fiscal year ending December 2022 to be $6.39, indicating a 44.7% improvement year-over-year. The company’s revenue is likely to increase 22.6% year-over-year to $99.64 billion in the same year. Additionally, PFE has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.  

The stock has gained 3.5% over the past month to close its last trading session at $45.74. 

PFE’s POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

PFE is rated an A in Value and a B in Quality. Within the Medical - Pharmaceuticals industry, it is ranked #9 out of 162 stocks.

Click here to see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for PFE.

Sanofi (SNY)

SNY researches, develops, manufactures, and sells therapeutic solutions globally. The company operates through the three broad segments of Pharmaceuticals; Vaccines; and Consumer Healthcare. It is headquartered in Paris, France.

On October 6, SNY announced it had entered into a co-promotion service agreement with Provention Bio, Inc. (PRVB) for the commercialization of teplizumab in the U.S. If approved by the U.S. Food and Drug Administration, teplizumab would be the first-ever disease-modifying therapy in T1D, which might bolster the company’s position in the industry.

On September 28, The U.S. Food and Drug Administration approved SNY’s Dupixent for treating adult patients with prurigo nodularis, after which it became the first and only medicine specifically indicated to treat prurigo nodularis in the U.S. This should solidify SNY’s presence in the U.S.

SNY's annual dividend of $1.75 1.60 yields 3.47% on current prices. The company’s dividend payouts have increased at a 0.5% CAGR over the past three years and a 1.3% CAGR over the past five years. Its 4-year average yield amounts to 3.8%.

In the third quarter of 2022, Sanofi generated net sales of €12.48 billion ($12.51 million), increasing 19.7% year-over-year. Its gross profit grew 22.6% year-over-year to €9.31 million ($9.33 million), while its net business income improved 31.8% from its prior-year quarter to €3.61 million ($3.61 million).

Analysts expect SNY’s EPS to rise 10.3% year-over-year to $0.87 for its fiscal fourth quarter ending December 2022. Its revenue is estimated to be $11.02 billion. Additionally, SNY has topped the consensus EPS estimates in each of the trailing four quarters.

The stock has gained 11.7% over the past month to close yesterday’s trading session at $41.58. It has gained 3% over the past five days.

SNY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.

SNY has a Growth, Value, Stability, and Sentiment grade of B. It is ranked #8 out of 162 stocks in the Medical – Pharmaceuticals industry.

In addition to the POWR Rating grades we have stated above, one can see SNY ratings for Momentum and Quality here.

Karooooo Ltd. (KARO)

KARO, headquartered in Singapore, provides a mobility software-as-a-service (SaaS) platform for connected vehicles in several parts of the world. The company’s offerings include Fleet Telematics, a fleet management SaaS platform that provides real-time insights, and LiveVision, which offers proactive risk management and fleet visibility.

Its annual dividend of $2.40 yields 10% on current prices.

KARO’s revenue increased 30.4% year-over-year to ZAR859.28 million ($47.78 million) in the second quarter that ended August 31. Its gross profit grew 26% from the year-ago value to ZAR569.21 million ($31.65 million), while its operating profit improved 22.8% year-over-year to ZAR218.13 million ($12.13 million). The company’s adjusted earnings per share rose 28.1% from its prior-year quarter to ZAR4.93.

The consensus revenue estimate of $188.56 million for the fiscal year ending February 2022 indicates a 9.1% improvement year-over-year. The consensus EPS is expected to be $1.10 for the same period, indicating a rise of 9% from the prior-year value. It has surpassed its EPS estimate in three out of four trailing quarters, which is impressive.

Over the past five days, the stock has gained marginally to close its last trading session at $24.

It is no surprise that the company has an overall rating of B, which translates to Buy in our proprietary rating system.

KARO is rated an A in Quality and a B in Value, Sentiment, and Stability. Within the Software - Application industry, it is ranked #8 out of 147 stocks.

To see additional POWR Ratings for Growth and Momentum for KARO, click here.

PFE shares rose $0.01 (+0.02%) in premarket trading Friday. Year-to-date, PFE has declined -20.69%, versus a -19.27% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.


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