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Some stocks regularly populate the list of high-yielding companies in the S&P 500, including AT&T, Verizon Communications, and
Altria
.
But this year’s market selloff has added seven new names to the group of about three dozen stocks in the S&P 500 that now yield 4% or more.
They are
Gilead Sciences
(ticker: GILD),
Best Buy
(BBY),
Walgreen
s Boots Alliance (WBA),
Franklin Resources
(BEN),
VF Corp
.
(VFC), 3M (MM), and
Truist Financial
(TFC).
All seven generate enough cash to cover their 4% dividends comfortably, with five of the seven having payout ratios (current annual payouts divided by projected 2022 earnings) of under 50%. They also carry reasonable valuations, with four of the stocks trading for less than 10 times projected 2023 earnings.
None of the seven is a Wall Street favorite. Franklin Resources doesn’t have a single Buy rating among analysts tracked by Bloomberg. 3M and Walgreen have just one Buy each in their analyst coverage.
Company / Ticker | Recent Price | Dividend Yield | 2022E Dividend Payout Ratio | 2022E P/E |
---|---|---|---|---|
Gilead Sciences / GILD | $64.40 | 4.5% | 41% | 9.8 |
Walgreens Boots Alliance / WBA | 43.47 | 4.4 | 38 | 8.5 |
Franklin Resources / BEN | 26.44 | 4.3 | 31 | 7.4 |
Best Buy / BBY | 83.76 | 4.3 | 45 | 9.7 |
V.F. Corp. / VFC | 49.83 | 4.1 | 60 | 15.0 |
3M / MMM | 148.72 | 4.0 | 55 | 13.7 |
Truist Financial / TFC | 47.33 | 4.0 | 42 | 10.6 |
E-estimate
Sources: S&P Dow Indices; FactSet
Best Buy is a category leader whose stock is down about 15% this year to $84, due to weakening demand for consumer electronics relative to a robust 2021.
The company recently cut financial guidance for its current fiscal year, ending in January 2023, by about 30 cents, to a midpoint of $8.70 a share. The stock trades for under 10 times earnings. Best Buy not only is paying a 4%-plus dividend but bought back 10% of its stock in the past year.
Walgreen, at around $43, trades for just eight times earnings and is valued at only 40% of sales. The company sees earnings growth in the low single digits in its current fiscal year, ending in August, boosted by Covid vaccines and testing. Analysts see slightly lower profits next year but that seems reflected in Walgreen’s depressed price.
Truist Financial, formed from the 2019 merger of BB&T and SunTrust Banks, is one of the leading banks in the Southeast. Its shares, at around $49, are down 16% this year and trade for 10 times projected 2022 earnings. They yield 4%. Truist has trailed rivals in loan growth and has less cash to deploy at higher rates.
3M, a diversified industrial company, has been depressed by investor concerns over legal liability issues, including issues related to the chemical PFAS. The shares, at around $149, trade for less than 14 times projected 2022 adjusted earnings of about $11. The stock yields 4%.
JP Morgan analyst Steve Tusa is Neutral on the stock, writing after 3M’s first-quarter earnings report that while the stock is cheap, environmental liabilities have become a bigger issue this year.
Traditional asset managers aren’t in favor with investors due to the shift toward indexing and alternative assets. Franklin Resources is among the least-liked managers, due to ongoing net outflows. Franklin has had some success in building its alternatives platform.
Its shares trade around $27, yield 4.3%, and fetch just seven times earnings for the fiscal year ending in September.
With such brands as Vans, Timberland, and North Face, VF is one of the larger apparel makers. Its shares, at around $50, are off 31% this year and now yield 4%. The company recently said it sees roughly 5% growth in earnings per share, to $3.35, in its fiscal year ending in April 2023.
Analysts have been concerned about trends in the Vans footwear business and an $845 million payment to the Internal Revenue Service related to a tax dispute that VF anticipates for this year.
Gilead is a leader in HIV drugs and its antiviral Veklury (formerly Remdesivir) was widely prescribed for Covid.
Its shares, at around $64, are valued at about 10 times projected 2022 earnings and yield 4.5%. Adjusted earnings are seen falling about 10%, to $6.50 a share, this year on lower sales of Veklury. The company’s low valuation reflects expectation of slow revenue growth in the coming years.
Write to Andrew Bary at andrew.bary@barrons.com
Read More: VF, Best Buy, Walgreen, and 3M Join 4% Yielders Club in S&P 500