Forbes editor John Dobosz has selected five high-yielding and value-priced stock picks to help combat inflation – 3M Company, Intel, LyondellBasell Industries NV, Ethan Allen Interiors, and Greif.
John Dobosz has over 20 years of experience in investment research and reporting and is the editor for the Forbes Premium Income Report and the Forbes Dividend Investor.
He noted that stocks in the Forbes Dividend Investor portfolio yield 4.8% on average, and its total return from 2015 to 2019 is higher than any of the most popular dividend funds.
Commenting on current market conditions, Dobosz said that while raging inflation, monetary tightening, and geopolitical tensions threaten a global recession, the market is going through a normal down cycle – presenting an opportunity for long-term investors.
“Regardless of what the stock market has in store in the next several months, stocks have always gone up over time, through wars, pandemics, recessions, and depressions,” he said.
“Long-term investors welcome opportunities like these to buy stocks cheaply, especially those that pay reliable and sizable dividends.”
Dobosz considers a company’s price multiples of sales, book value, earnings, and cash flow when picking stocks that add value.
Based on these considerations, Dobosz’s five dividend payers and why he believes they are priced at levels that strongly suggest substantial future appreciation are listed below.
3M is a global conglomerate with 58% of its sales taking place outside of the U.S.
3M is organized into four business segments – safety and industrial, transportation and electronics, healthcare, and general consumer goods for home care, home improvement, stationery and office products.
Even with a potential recession ahead, revenue this year for 3M is expected to grow 1.2% to $35.8 billion.
3M earnings are up 5.5% to $10.67 per share, giving the stock a 12.2 forward price-to-earnings ratio – 30% below its five-year average P/E of 17.4.
The company currently trades at $124.9 with an intrinsic value of $185.
Another important consideration is its enterprise value – market capitalization plus debt, divided by earnings before interest, taxes, depreciation and amortization (Ebitda).
3M’s enterprise value is 9.1 times Ebitda, which is 25% below its five-year average EV/Ebitda ratio.
This year’s expected cash flow is $8.69 per share, easily covering $5.96 in annual dividends.
Over the past ten years, the quarterly dividend has grown 10% annually to its current rate of $1.49 per share.
Dobosz believes 3M’s 4.6% yield offers shareholders a decent return while they wait for the market to stabilise.
Intel is an American multinational semiconductor and technology company headquartered in Santa Clara, California.
Even with diminished forecasts for coming quarters, revenue this year is expected to rise by 1% from 2021.
Intel’s enterprise value is 5.5 times Ebitda, which is 22% below its five-year average of 7.1.
Although the chipmaker puts a hefty $0.26 of every dollar of sales into capital expenditures – like building a new semiconductor foundry in Ohio – it has still generated a free cash flow of $2.39 per share over the past 12 months.
This is more than enough to cover annual dividends of $1.46 per share and to maintain a 6% annual increase as it has done for the past decade.
The stock offers a generous dividend yield of 4.3% – among the highest yields in company history – with quarterly dividends growing 15% annually since May 2000.
Intel offers dividend investors great value as it trades at a 28% discount to its five-year average price-to-sales multiple based on year-ahead sales.
LyondellBasell Industries NV
LyondellBasell (LYB) is the world’s largest polypropylene and second-largest propylene oxide producer.
The company’s chemicals are used in various consumer and industrial products such as car parts, surgical gowns, children’s toys, wind turbines, and water pipes.
LYB is one of the world’s largest plastics, chemicals and refining companies, and sales have grown 9.6% annually over the past five years, while earnings growth has been 12.9% per year.
LYB expects revenue in 2022 to rise 13.7% to $52.5 billion and has a price-to-earnings ratio of 5.4 – 37% below its five-year average P/E of 8.5.
Its free cash flow of $19.70 per share over the past 12 months holds potential for more special dividends like the $5.20 per share it just paid in June.
LYB is trading 40% below its average price-to-sales ratio, with a dividend yield of 5.4%.
Ethan Allen Interiors
Ethan Allen is based in Connecticut and makes furniture and home accessories that it sells through a network of retail stores and wholesale networks.
The company expects revenue this year to grow 15% to $787.4 million, with earnings jumping 48% to $3.51 per share.
The furniture maker’s current price-to-earnings ratio of 5.9 – 56% below its five-year average of 13.4.
Despite decent growth, shares are trading at substantial discounts to other five-year average valuation multiples, such as price-to-sales, price-to-book value, and price-to-cash flow.
Ethan Allen has paid off all its long-term debt since 2010, which amounted to nearly $200 million – making the company debt-free today.
Free cash flow of $2.24 per share over the past 12 months comfortably covers $1.28 in annual dividends.
The company often pays special dividends in addition to the regular $0.32 quarterly payout, which was hiked 10% in the second quarter of 2022 and has grown 13% annually.
Ethan Allen’s current dividend yield is sitting at a rich 6.1%.
Greif is a producer of rigid industrial packaging products, including plastic drums, bulk containers, transit protection products, and water bottles.
Greif is passing rising costs on to consumers, hiking prices by 7% for its protective packaging products used in shipping and storage.
Revenue this year is expected to rise 16% to $6.5 billion, with earnings jumping 36% to $7.61 per share.
At a P/E ratio of 8.1, Greif trades at a 38% discount to its five-year average.
The packaging producer trades at a discount to all five value metrics Dobosz uses to assess the value of stocks.
The company currently trades at $67,03 and has an intrinsic value of $76 per share, with a dividend yield of 4.5%.