Amid concerns over the recent banking crisis, the Fed stands at policy crossroads weighing strong economic data against jittery capital markets in deciding whether to hike interest rates or not. Amid the uncertain market and economic conditions, dividend-paying stocks Oracle Corporation (ORCL), CVS Health Corporation (CVS), and Humana Inc. (HUM) could be solid buy-and-hold stocks for generating a steady income stream.
Before we get deeper into the fundamentals of these stocks and justify why they are attractive retirement picks, let’s discuss what’s affecting investor sentiment.
Recent banking turmoil with the failures of Silicon Valley Bank and Signature Bank of New York and renewed recession worries have weighed on investor sentiment lately. The Federal Reserve is facing one of the toughest calls on interest rates in years, as worries over the banking crisis cast doubt on the need for further action to control stubborn inflation.
The Labor Department reported that the Consumer Price Index (CPI) rose 0.4 sequentially and 6% year-over-year in February. While inflation is on an eight-month downtrend, it remains well above the Fed’s target of 2%. Latest upbeat economic data showing jobs growth and high inflation levels suggest the need for more aggressive rate increases.
Most economists expect the central bank to increase its policy funds target range to 4.75%-5% on Wednesday afternoon, while some expect the Fed to pause rate hikes for now. Citigroup’s economist Andrew Hollenhorst expects the Fed to hike policy rates by 25 basis points today.
In line with this, Bank of America’s strategist Mark Cabana said, “We expect the Fed to hike by 25bps at this meeting, but the decision & outlook for any tightening depend on financial stability. Recent economic momentum & inflation have been overshadowed by banking system risks, sharply repricing the Fed’s path.”
On the other hand, Goldman Sachs Group expects the Fed to pause its rate hike for now. “We think Fed officials are likely to prioritize financial stability for now, viewing it as the immediate problem and high inflation as a medium-term problem,” said Goldman economists. Also, Well Fargo’s Jay Bryson sees the Fed briefly pause its tightening efforts to ensure financial stability.
Let’s discuss why investors should consider buying and holding ORCL, CVS, and HUM.
Oracle Corporation (ORCL)
ORCL provides products and services that address enterprise IT environments worldwide. The company’s Oracle cloud software as a service offering includes several cloud software applications, such as Oracle Fusion cloud enterprise resource planning (ERP), Oracle Fusion cloud enterprise performance management, Oracle Advertising, and Oracle Fusion Sales and Marketing.
On March 21, 2023, ORCL announced that it had extended its collaboration with NVIDIA Corporation (NVDA) to include running strategic AI applications on the new Oracle Cloud Infrastructure (OCI) Supercluster™.
“OCI is the first platform to offer an AI supercomputer at scale to thousands of customers across every industry. This is a critical capability as more and more organizations require computing resources for their unique AI use cases. To support this demand, we continue to expand our work with NVIDIA,” said Clay Magouyrk, executive vice president of Oracle Cloud Infrastructure.
On March 1, ORCL was selected by AT&T Mexico to transform its technology strategy with Oracle Cloud Infrastructure (OCI). AT&T Mexico is moving critical IT and business processes to OCI to expand the benefits of mobile internet to more than 21 million subscribers and business customers nationwide.
Also, on February 13, ORCL and Uber Technologies, Inc. (UBER) announced a seven-year strategic cloud collaboration to accelerate UBER’s innovation by migrating some of the company’s most critical workloads to OCI. This will position UBER to modernize its infrastructure while boosting its path to profitability.
These recent strategic deals for OCI further validate the momentum and acceleration ORCL is experiencing in the market.
ORCL’s net revenue increased 17.9% year-over-year to $12.40 billion for the third quarter that ended February 28, 2023. Its non-GAAP operating income grew 7.7% from the year-ago value to $5.19 billion. The company’s non-GAAP net income and non-GAAP EPS came in at $3.38 billion and $1.22, up 9% and 8% year-over-year, respectively.
The company has a record of increasing its dividend for eight consecutive years. ORCL pays a $1.59 per share dividend annually, translating to a 1.83% yield on the current price. Its four-year average dividend yield is 1.68%. Its dividend payouts have grown at an 11% CAGR over the past five years.
Analysts expect ORCL’s revenue and EPS for fiscal 2023 to increase 17.5% and 2.8% year-over-year to $49.85 billion and $5.04, respectively. Moreover, the company has surpassed the consensus revenue and EPS estimates in three of four trailing quarters.
Furthermore, the company’s revenue and EPS for fiscal 2024 are expected to grow 7.6% and 11% from the previous year to $53.61 billion and $5.59, respectively. Over the past six months, the stock has gained 31.2% to close the last trading session at $87.58.
ORCL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ORCL has a B grade for Stability and Sentiment. In the Software – Application industry, it is ranked #32 out of 134 stocks.
Click here for the additional POWR Ratings for Value, Momentum, Growth, and Quality for ORCL.
CVS Health Corporation (CVS)
CVS offers health services in the United States. The company operates through three segments: Health Care Benefits; Pharmacy Services; and Retail/LTC. It runs retail locations, online retail pharmacy websites, LTC pharmacies, and onsite pharmacies.
On February 8, 2023, CVS and Oak Street Health, Inc. (OSH) entered into a definitive agreement under which CVS Health will acquire OSH for approximately $10.6 billion. Combining OSH’s platform with CVS’ unmatched reach might create the premier value-based primary care solution, boosting the company’s growth and profitability.
CVS’s annual dividend of $2.42 per share yields 3.20% at the current price. Its four-year average dividend yield is 2.74%. Over the last three years, its dividend payouts have grown at a 4.1% CAGR.
For the fourth quarter that ended December 31, 2022, CVS’ total revenue increased 9.5% year-over-year to $83.85 billion. The company’s operating income was $3.62 billion, an increase of 62.3% year-over-year. Its attributable net income rose 76.3% from the year-ago value to $2.30 billion, while its EPS came in at $1.75, up 78.6% year-over-year.
Analysts expect CVS’ revenue to increase 3.1% year-over-year to $332.51 billion in 2023. The company’s EPS for the current year is expected to grow 1.8% year-over-year to $8.84. Also, it has an impressive earnings surprise history as it topped the consensus EPS estimates in each of the four trailing quarters.
Shares of CVS have gained marginally over the past five days to close the last trading session at $75.56.
CVS’ solid prospects are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
CVS has a B grade for Value, Sentiment, and Stability. It topped among four stocks within the B-rated Medical – Drug Stores industry. Click here to access CVS’ ratings for Growth, Momentum, and Quality.
Humana Inc. (HUM)
Health and well-being company HUM operates through two segments: Insurance and CenterWell. It provides medical and supplemental benefit plans to individuals. In addition, it offers pharmacy solutions, provider services, and home solutions services to its health plan members and third parties.
On March 2, 2023, HUM and Aledade, the nation’s largest network of independent primary care, announced a 10-year collaboration to provide value-based primary care from in-network Aledade-enabled physicians to HUM’s Medicare Advantage members. Both companies aim to deliver personalized value-based health care to patients nationwide with this partnership.
On February 16, HUM’s Board of Directors declared a cash dividend of $0.885 per share, payable on April 28, 2023. This quarterly dividend reflects an increase of 12.4% from the prior dividend of $0.7875 per share.
HUM’s annual dividend of $3.54 translates to a 0.71% yield at the current price. Its four-year average dividend yield is 0.65%. Also, its dividend payouts have grown at 12.7% and 14.5% CAGRs over the past three and five years, respectively. The company has raised its dividend for six consecutive years.
In the fourth quarter that ended December 31, 2022, HUM’s total revenues increased 6.6% year-over-year to $22.44 billion. Its income from operations rose 103.3% from the year-ago value to $124 million. Its non-GAAP income before income taxes and equity in net earnings was $263 million, up 58.4% year-over-year. Also, the company’s non-GAAP EPS grew 30.6% year-over-year to $1.62, while
The consensus revenue estimate of $103.66 billion for the fiscal year (ending December 2023) reflects an improvement of 11.6% year-over-year. The consensus EPS estimate of $28.12 for the ongoing year indicates an 11.4% increase year-over-year. Moreover, HUM surpassed the consensus EPS estimates in each of the trailing four quarters.
In addition, HUM’s revenue and EPS for fiscal 2024 are expected to increase by 8.7% and 13.6% from the prior year to $112.71 billion and $31.95, respectively. The stock has gained 2.1% over the past six months and 14.7% over the past year to close the last trading session at $500.87.
HUM’s POWR Ratings reflect a promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Quality, and Sentiment.
Within the A-rated Medical – Health Insurance industry, it is ranked #3 of 10 stocks.
In addition to the POWR Ratings stated above, we have also given HUM grades for Momentum and Stability. Get all HUM ratings here.
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ORCL shares were unchanged in premarket trading Wednesday. Year-to-date, ORCL has gained 6.69%, versus a 4.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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