3 Dividend Stocks That Can Make You Richer in February (and Beyond)
YesYou may not like what I’m about to tell you, but stock market crashes and corrections are an inevitable part of the investment cycle.
Last month, the much-followed S&P500 and very technological Nasdaq Compound suffered their strongest corrections since the pandemic-induced crash of March 2020.
However, every major crash, correction, and pullback throughout history has represented an opportunity for patient investors to grow their money in the stock market at a discount. This could be a particularly great time to put your money to work dividend stocks.
The answer to “Why Dividend Stocks?” is simple: they make money. Dividend-paying stocks are almost always profitable, have proven operating models, and offer a rich track record of outperforming non-dividend-paying stocks.
In 2013, JP Morgan Asset Management, a division of the banking giant JPMorgan Chase, published a report comparing the performance of companies that launched and increased their dividend to non-payers over a period of four decades (1972-2012). The results showed a 9.5% annualized gain over 40 years for dividend-paying stocks versus a meager 1.6% annualized gain for those that did not pay a dividend.
Following the market’s significant pullback, three dividend-paying stocks stand out as having all the tools you need to get rich in February, and well beyond.
Bank of America
The first dividend stock just begging to be bought by income seekers in February is the money center giant Bank of America (NYSE: BAC).
Bank stocks are inherently cyclical. This means they struggle when the US and/or global economy is in recession and thrive when the reverse is true. What is important to understand is that there is a large time disparity between economic expansions and recessions. While contractions and recessions are often measured in months or quarters, periods of expansion last for years. Buying bank stocks like BofA often allows patient investors to take advantage of economic growth over time.
But there’s another exciting reason why Bank of America stands out. Among the monetary banks, none is more sensitive to interest rates than BofA. This distinction is important given that US inflation is at a 40-year high and the Federal Reserve looks set to raise interest rates multiple times in 2022 and 2023. According to fourth-quarter operating results quarter of Bank of America, a base of 100 parallel shift of one point in the interest rate curve would result in a $6.5 billion in additional net interest income over 12 months. In short, we’re about to see additional interest income from outstanding floating rate loans flow directly into BofA’s bottom line and boost its earnings per share.
Investors should learn about Bank of America’s digitization efforts also. Over the past three years, the company’s number of active digital users has grown from 5 million to 41 million, with the percentage of sales made online or through a mobile app rising from 31% to 49%. Since digital sales are considerably cheaper for the company than face-to-face and telephone interactions, this digital shift has allowed BofA to consolidate some of its branches and reduce expenses.
While Bank of America’s 1.8% return isn’t mind-blowing, keep in mind that it offers one of the most generous shareholder return policies among the big banks. With higher earnings likely around the corner, expect BofA to bolster its dividend and share buyback program by mid-year.
A second dividend stock that can make investors rich in February and beyond is the gold miner. Kinross Gold (NYSE: KGC).
It probably goes without saying, but investors can’t be optimistic about gold stocks without having a positive view of the shiny yellow metal. The good news is that gold offers a favorable outlook. Historically low lending rates coupled with high inflation have made it very difficult for income investors to generate real money returns. With gold serving as a hedge against inflation and fear, it should perform well throughout 2022.
On a more company-specific basis, Kinross Gold should benefit from production improvements at a key mine. While Mauritania’s Tasiast mine has sometimes caused more trouble than it’s worth, this key asset could nearly double its gold production in the next two years. By the end of the first quarter, the Tasiast 21k project, which will increase mine throughput to 21,000 tonnes per day, will be completed. By mid-2023, throughput will reach 24,000 tonnes per day. Once fully ramped up, Tasiast will be a flagship asset with all-in sustaining costs of approximately $560 per ounce of gold. This equates to an operating margin of over $1,200/oz, based on the current physical gold situation ($1,800/oz).
Additionally, Kinross Gold has a veritable mountain of projects in development. Later this year, production will begin at the La Coipa mine, with first production planned at Manh Choh and Udinsk in 2024 and late 2025, respectively. Between the expansion of the organic mine and bringing new assets online, Kinross expects gold equivalent ounce (GEO) production to increase from 2.1 million in 2021 to 2.9 million. GEO in 2023.
In addition to a healthy pipeline, Kinross Gold’s assets offer a reasonably long life. Given the expected life of reserves and resources, the majority of Kinross’ major mines are expected to produce for 15 years or more.
Currently yielding a market-leading 2.3%, Kinross Gold can be fetched for less than seven times Wall Street’s consensus earnings forecast for 2022. It has an even lower multiple considering the company’s operating cash flow. It’s just too good for income investors.
A third dividend that investors can confidently buy to get rich in February, and likely well beyond, is pharmaceutical inventory Merck (NYSE: MRK).
The beauty of healthcare stocks like Merck is that they are very defensive. While they may decline in sympathy with the wider market during downturns, their operating performance remains largely unaffected by economic contractions and stock market movements. Since we cannot control when we get sick or what illnesses we develop, there is usually a constant demand for prescription drugs, medical devices and healthcare services.
The main driver of Merck’s results continues to be the cancer immunotherapy Keytruda, which has more US approved indications than I can count. In the third quarter, Keytruda achieved a turnover of 4.53 billion dollars, which is equivalent to over $18 billion in annual revenue. Between multiple ongoing clinical trials that could expand its label and strong pricing power, Keytruda could well become the world’s best-selling drug in the coming years (not counting COVID-19 vaccines).
Nor was Merck afraid to leverage inorganic opportunities to increase its growth rate and diversify its sales channels away from Keytruda. Last year he spent $11.5 billion to acquire Acceleron Pharma to seize the sotatercept. This late-stage clinical therapy has shown promise as an adjunct to the current standard of care in patients with pulmonary arterial hypertension. Although estimates vary, sotatercept is expected to exceed $1 billion in peak annual sales, if approved.
However, Merck is not limited to brand name pharmaceuticals. The company’s animal health division is making waves with consistent double-digit growth. In particular, pet therapy were particularly strong. With more U.S. households owning a pet than ever before, Merck’s animal health segment can shine.
Investors can gobble up this pharmaceutical giant for a reasonably low 11 times Wall Street’s projected earnings in 2022, and they’ll be rewarded with a solid 3.4% dividend yield for their patience.
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JPMorgan Chase and Bank of America are advertising partners of The Ascent, a Motley Fool company. Sean Williams owns Bank of America. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.