With concerns mounting over the Fed’s ability to contain inflation without simultaneously undermining the economy and triggering a mild recession, it might be prudent to evaluate the suitability of dividend-paying and stable stocks of Walmart Inc.WMT), BHP Group Limited (BHP) and American Vanguard Corporation (AVD) for a pension portfolio.
Over the past year, the Fed has raised its benchmark interest rates eight times, most recently by 25 basis points in January. This brought the borrowing rate into a target range of 4.5%-4.75%. Despite the Fed’s efforts, inflation is still well above the 2% target.
Continued high inflation has followed the economy into 2023, with the consumer price index (CPI) 0.5% for the month in January and 6.4% from a year ago, beating economists’ expectations of 0.4% and 6.2% respectively. Elevated inflation levels indicate that the Fed has more work to do. Minutes from the last meeting of the Fed warn of further rate hikes.
Democratic lawmakers in particular are increasingly concerned that the Fed could drag the economy down with its commitment to fighting inflation. This has left markets tense, with growing concerns over whether Fed Chairman Jerome Powell can lower inflation without weakening the broader economy at the same time.
Former Treasury Secretary Larry Summers has warned, “The process of reducing inflation is going to trigger a recession at some point.” He continued, “The economy could hit an air pocket in a few months.”
So investors nearing retirement can look at stocks with a strong foundation of stability. Let’s discuss why WMT, BHP, and AVD might be good choices on that front.
Walmart Inc. (WMT)
WMT runs retail, wholesale and other branches around the world. The segments include Walmart US; Walmart International; and Sam’s Club. The company runs warehouse clubs, supermarkets, discount stores and cash-and-carry facilities. Moreover, it operates online under 46 different banners.
On March 2, 2023, WMT announced the opening of 28 additional WMT Health Center locations in 2024. This is expected to expand WMT Health’s footprint in Missouri and Arizona and strengthen its foothold in Texas. In addition, since 90% of the US population lives within 10 miles of a WMT, the company should benefit from expanded operations and more customers.
On February 28, WMT and Citigroup (C) announced their collaboration to the Bridge built by Citi platform to WMT’s 10,000 small and medium-sized businesses (SMBs) in their US-based supplier network. With this platform, WMT’s suppliers would have better access to the capital needed to grow their business and meet and exceed their goals. This should strategically contribute to the growth of the company.
Also, on Feb. 21, WMT approved an annual cash dividend of $2.28 per share for 2024, an increase of approximately -2% from the $2.24 per share paid for the prior fiscal year. The company has a record 49 years of consecutive dividend growth.
The annual dividend of $2.28 yields 1.62% at the current price level. The four-year average return is 1.67% and dividend payments have grown at a CAGR of 1.9% over the past three years.
WMT total income increased 7.3% year over year to $164.05 billion in the fiscal fourth quarter of 2023 ended January 31. Pre-tax income increased 86.2% from last year’s quarter to $8.90 billion. In addition, the company’s consolidated net income grew 59.9% year-over-year to $5.81 billion, while adjusted earnings per share came in at $1.71, up 11.8% year-over-year.
The consensus revenue estimate of $648.85 billion for the fiscal year ending January 2025 reflects a 3.4% year-over-year improvement. The consensus earnings per share estimate of $6.79 for the same year indicates an increase of 11.4% over the prior year. In addition, WMT beat its consensus EPS estimates in three of the four lagging quarters.
Shares of WMT are up 6.3% over the past six months to close out the last trading session at $140.65. In addition, the stock has a beta of 0.53.
WMTs POWR ratings reflect the strong outlook. The stock has an overall rating of A, which equates to a strong buy in our proprietary rating system. The POWR ratings are calculated by considering 118 different factors, each with an optimal weight.
The stock has an A rating for stability and a B rating for quality and value. In the A-rated 38 stock Grocery / Big Box Retailers industry, it ranks number 3.
In addition to what we mentioned above, we also have WMT ratings for growth, sentiment, and momentum. Get all WMT ratings here.
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia, BHP is a global commodities company. Its international activities include potash development, nickel mining, smelting and refining.
On February 21, 2023, BHP Chief Executive Officer Mike Henry said, “We are positive about the demand outlook in the second half of FY23 and into FY24.” He continued: “The long-term outlook for our raw materials remains strong given population growth, rising living standards and the metal intensity of the energy transition, including for raw materials for steel production.”
On January 24, BHP announced that production at the Jansen potash project in Saskatchewan, Canada, is expected to begin production in late 2026, with an annual yield of 4.35 million tons of potash. BHP’s partnerships would give it the edge it needs to expand and grow its business in Saskatchewan and across Canada.
BHP’s financial income increased 744% year over year to $211 million during the half year ended December 31, 2022. As of December 31, 2022, the company’s total fixed assets were $67.72 billion, compared to $66 .50 billion as of June 30, 2022, while BHP’s total current liabilities were $11.89 billion, compared to $16.92 billion as of June 30, 2022.
BHP pays an annual dividend of $7.00, which translates to a yield of 10.63% at current price levels. The company’s dividend payments have grown at a CAGR of 37.6% over the past three years, and its four-year average return is 7.84%.
The earnings-per-share consensus estimate of $5.08 for the fiscal year (ending June 2024) reflects a 32.5% year-over-year improvement. Shares of BHP are up 28.5% over the past six months to close out the latest trading session at $64.04. BHP also has a beta of 0.81.
BHP’s solid foundations are reflected in the POWR ratings. The stock has an overall rating of B, which is equivalent to buy in our proprietary rating system. The flask has a quality class A and a stability class B. In the 36 flask Industrial – Metals industry, it ranks number 2.
In addition to what we mentioned above, we also have BHP’s ratings for value, growth, sentiment and momentum. Get all reviews from BHP here.
American Vanguard Corporation (AVD)
AVD develops and markets specialty chemicals for agricultural, commercial and consumer applications. In addition, the company offers biological and end-use chemical solutions for crop applications, and chemicals for the turf and floriculture industries.
On January 17, 2023, AMGUARD™ Environmental Technologies, the Specialty Markets division of AMVAC Chemical Corporation, a wholly owned subsidiary of AVD, announced the acquisition of the product and trademark assets of American Bio-Systems. American Bio-Systems’ patented microbial cleaning products BioMop-Plus® and DrainGel® are great additions to AMGUARD’s portfolio.
For the fiscal third quarter ended September 30, 2022, AVD net sales increased 3.3% year over year to $152.12 million, while gross profit grew 7.6% over the prior year period to $61.38 million. The company’s operating income increased 25.7% from a year ago to $11.24 million.
In addition, AVD’s adjusted EBITDA grew 11.4% over the same period last year to $18.91 million. The company’s net income and earnings per share increased 22.6% and 27.8% year over year to $6.74 million and $0.23, respectively.
The company pays an annual dividend of $0.12, which translates to a yield of 0.56% at current price levels. AVD’s dividends have grown at a CAGR of 11.8% over the past five years, and its four-year average return is 0.44%.
Analysts expect AVD’s revenue to grow 8.2% year over year to $657.70 million for the fiscal year ending December 2023. The company’s earnings per share for the current year are expected to grow by 41.6% increase over the previous year to $1.23. The stock is up 25.3% over the past year, closing its last trading session at $20.48. In addition, AVD has a beta of 0.92.
AVD’s POWR ratings reflect its strong outlook. The stock has an overall rating of A, which equates to a strong buy in our proprietary rating system.
AVD has a B grade for quality, stability, value and sentiment. It ranks #2 in the B-rated 84 stock Chemicals industry.
In addition to the POWR ratings I just highlighted, you can see AVD’s ratings for growth and momentum here.
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WMT shares traded at $138.86 per share Tuesday afternoon, down $1.79 (-1.27%). Year-to-date, WMT is down -2.07%, versus a 4.14% increase in the benchmark S&P 500 index over the same period.
About the author: Aanchal Sugandh
Aanchal’s passion for financial markets drives her work as an investment analyst and journalist. She received her bachelor’s degree in finance and attends the CFA program. She is adept at assessing the long-term prospects of stocks with her fundamental analysis skills. Its goal is to help investors build portfolios with sustainable returns. More…