The euphoria that helped the S&P500 The double between 2019 and the end of 2021 has evaporated so far in 2022. It’s only been three weeks into the year, and the S&P 500 is down more than 7% while the Nasdaq is down by 12%.
Procter & Gamble (NYSE:PG), Clorox (NYSE: CLX)and Kinder Morgan (NYSE: KMI) are three solid dividend-paying stocks to consider if you’re concerned about increased market volatility. Here’s what makes each a great buy now.
1. Procter & Gamble: A dividend king built to last
Procter & Gamble has recession resilience, inflation resistance, strong brands, pricing power and industry leadership. P&G has long been considered a defensive investment option in situations where capital preservation, value and income are more important than growth.
For example, the S&P 500 fell 57% from its 2007 high on October 9 to its 2009 low on March 9. P&G stock fell 38% over that period – still bad, but much less than the market.
Additionally, P&G was one of the few consumer staples stocks to keep pace with the S&P 500 during its bull run over the past five years, while producing dividends and being far less volatile than the fastest growing names. In a market dominated by tech mega-companies, it’s impressive to see a 185-year-old company turn in a solid performance.
P&G just released results for the second quarter of its fiscal year 2022, and it posted consistent organic growth, strong margins, and strong cash flow generation, even in the face of higher costs due to inflation. With 65 consecutive years of dividend increases and a 2.1% yield, P&G is a dividend-paying stock you can count on today.
2. Clorox: An Unlucky Dividend Aristocrat
Clorox may not have P&G’s track record. But it is a Dividend Aristocrat, having increased its annual dividend for 45 consecutive years.
Similar to P&G, Clorox has a portfolio of brands that perform well through market cycles. Since taking over as CEO of Clorox in September 2020, Linda Rendle has built a campaign focused on increasing spending to drive a shift in consumer behavior toward cleanliness and hygiene.
What has been causing the company trouble lately has been its higher ad spend, coupled with supply chain issues and higher costs due to inflation. Unfortunately, these factors have had a significant impact on Clorox’s revenues and results as well as its free cash flow.
With Clorox posting a record high in 2020, investors were understandably disappointed with its inability to maintain momentum. However, long-term investors could take this opportunity to buy shares of Clorox during this period of near-term weakness, taking comfort in its ultra-safe dividend yield of 2.6% and the prospect of better times ahead.
3. Kinder Morgan: a solid investment in natural gas
The oil and gas industry is generally not synonymous with the “ultra-safe dividend”. But gas pipeline giant Kinder Morgan is in a class of its own. Quarter after quarter, the company has made it very clear that preserving a healthy balance sheet and generating strong distributable cash flow (DCF) to support a growing dividend are its top priorities.
Gone are the days of the fast-growing Kinder Morgan of the first half of the 2010s. The transition from growth to stability may deter some oil and gas investors from investing in Kinder Morgan, but it’s great news for income investors looking for a high-yielding stock they can count on now. .
Kinder Morgan operates the largest gas pipeline network in the United States. It also has a large network of oil, liquids and CO2 transport and storage infrastructure. Given the stagnant or even negative long-term growth outlook for fossil fuels, Kinder Morgan selectively invests in new projects only when demand is high enough to justify the cost. In recent years, it has commissioned two major pipelines that carry natural gas from the Permian Basin in western Texas and eastern Mexico to the Gulf of Mexico, where the natural gas can be cooled and condensed into liquefied natural gas to be transported to buyers abroad.
Kinder Morgan has already released its full-year 2022 guidance. It is increasing its dividend to $1.11 per share per year and expects to generate $1.09 in earnings per share as well as $2.07 in cash flow. distributable per share, while maintaining good debt on its balance sheet. With a forward dividend yield of 6.4%, Kinder Morgan stands out as my top dividend stock to buy in 2022.
A defensive basket built for more market turbulence
Investing equally in P&G, Clorox, and Kinder Morgan would give you an average dividend yield of 3.7% while exposing your portfolio to industry-leading companies with strong free cash flow to support their dividends. While this basket would likely underperform the market as a whole in times of strong growth, it is ideally positioned for rising interest rates and the high inflation environment we are currently experiencing.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.