Although a cataclysmic impact of the debt default has been averted, the Fed’s hawkish stance to curb the sticky inflation could trigger a recession later in the year. Amid the existing market volatilities, investors could consider adding dividend stocks QUALCOMM Incorporated (QCOM) and AvalonBay Communities, Inc. (AVB) to their watchlist.
On the other hand, even though The Southern Company (SO) pays a dividend, it could be best avoided for now, given its bleak fundamentals.
The deal suspending the debt ceiling has raised optimism about averting the excruciating economic slump. However, some interpret the curbs on federal discretionary spending over the next two years to reduce the pace of economic growth.
In addition, the latest Fed data shows the Treasury General Account's balance is $54.49 billion as of last Friday (May 26, 2023), which is usually $500 billion. Swissquote Bank market analyst Ipek Ozkardeskaya said, "This means that the U.S. Treasury will be sucking around half a trillion dollars from the market very shortly."
The resultant liquidity drainage could impact those relying on margin borrowing to finance their investments. As margin levels decline, selling pressure could be created and contribute to market downturns.
In addition, the Fed’s preferred inflation gauge, the annual Core PCE Price Index, edged higher than expected in April. This had simultaneously raised fears of a 25-basis-point rate hike in the upcoming FOMC meeting, which was previously expected to halt.
Amid widespread market volatility, investors would be shifting their attention to secure their investments during downturns. Given this backdrop, quality dividend-paying stocks QCOM and AVB could be watched. However, dividend stock SO, with bleak prospects, could be best avoided.
Stocks to Watch:
QUALCOMM Incorporated (QCOM)
QCOM engages in the development and commercialization of foundational technologies for the wireless industry worldwide. It operates through three segments: Qualcomm CDMA Technologies; Qualcomm Technology Licensing; and Qualcomm Strategic Initiatives.
QCOM’s forward non-GAAP P/E of 13.25x is 38.2% lower than the industry average of 21.43x. Its forward EV/EBIT multiple of 11.53 is 35.5% lower than the industry average of 17.89.
On April 12, QCOM announced a quarterly dividend of $0.80 per common share, payable on June 22, 2023. QCOM pays a $3.20 per share dividend annually, which translates to a 2.90% yield on the current share price.
Its four-year average dividend yield is 2.36%. The company’s dividend payouts have grown at a CAGR of 6.7% over the past three years and 5.5% over the past five years.
For the fiscal second quarter that ended March 26, 2023, QCOM’s total revenues came in at $9.28 billion, and its operating income stood at $2.09 billion. For the same quarter, its non-GAAP net income and non-GAAP earnings per share came in at $2.42 billion and $2.15, respectively.
QCOM’s revenue and EPS are expected to come in at $9.82 billion and $2.42, up 3.8% and 2% year-over-year, respectively, for the fiscal first quarter ending December 2023. It surpassed the consensus revenue estimates in three of the four trailing quarters, which is impressive.
QCOM’s stock gained 5.1% intraday to close its last trading session at $116. It has gained 12.7% over the past five days.
This promising outlook is reflected in QCOM’s POWR Ratings. It has an A grade for Momentum and a B for Value and Quality in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It is ranked #30 out of 91 stocks in the Semiconductor & Wireless Chip industry.
One can see QCOM’s additional ratings for Growth, Stability, and Sentiment here.
AvalonBay Communities, Inc. (AVB)
AVB is an equity REIT in the business of developing, redeveloping, acquiring, and managing apartment communities in leading metropolitan areas in New England, the New York/New Jersey Metro area, the Mid-Atlantic, the Pacific Northwest, and Northern and Southern California.
On May 24, AVB’s board of directors declared a dividend of $1.65 per share, payable to the shareholders on July 17, 2023. AVB pays a $6.60 per share dividend annually, which translates to a 3.84% yield on the current share price.
Its four-year average dividend yield is 3.30%. The company’s dividend payouts have grown at a CAGR of 1.4% over the past three years and 2.3% over the past five years.
The stock’s trailing-12-month non-GAAP P/E of 23.48x is 7.9% lower than the industry average of 25.49x. Its trailing-12-month total Debt/Equity of 73.62x is 20.2% lower than the industry average of 92.22x.
For the fiscal first quarter that ended March 31, 2023, AVB’s total revenue increased 9.9% year-over-year to $674.71 million. Its core FFO attributable to common stockholders and core FFO per share stood at $359.97 million and $2.57, up 13.6% and 13.7% year-over-year, respectively.
Moreover, net cash provided by operating activities grew 15.3% year-over-year to $396.12 million for the same quarter.
Analysts expect AVB’s revenue and FFO for the fiscal quarter ending June 2023 to increase 6.1% and 7.2% year-over-year to $682.59 million and $2.60, respectively. AVB surpassed revenue estimates in three of the four trailing quarters.
The stock gained marginally intraday to close the last trading session at $172.73. Moreover, it has gained 6.9% year-to-date.
AVB’s POWR Ratings are consistent with its robust fundamentals. It has a B grade for Stability and Sentiment. The stock is ranked #5 of 22 stocks in the REITs - Residential industry.
Click here to get additional ratings for AVB (Growth, Value, Momentum, and Quality).
Stock to Sell:
The Southern Company (SO)
SO is engaged in the generation, transmission, and distribution of electricity. It operates through three segments: Gas Distribution Operations; Gas Pipeline Investments; and Gas Marketing Services.
On April 27, SO declared a dividend of $0.70 per share, payable to shareholders on June 6. Its annual dividend of $2.80 translates to a dividend yield of 4%. Its dividend payout ratio is 79.3%.
The stock’s forward non-GAAP P/E of 19.26x is 11.8% higher than the industry average of 17.23x. Its forward EV/EBITDA and Price/Sales of 13.43x and 2.83x are 21.9% and 40.5% higher than the industry averages of 11.02x and 2.02x, respectively.
For the fiscal quarter that ended March 31, 2023, SO’s total operating revenues declined 2.5% year-over-year to $6.48 billion, while its total operating expenses stood at $5.26 billion. Its non-GAAP net income and earnings per share stood at $867 million and $0.79, down 16.1% and 18.6%, from the prior-year quarter.
Analysts expect SO’s EPS to decline 24.9% year-over-year to negative $0.80 for the fiscal second quarter ending June 2023. Its revenue is expected to decline 10% year-over-year to $6.49 billion for the same quarter.
Over the past year, the stock has plummeted 8.2% to close the last trading session at $69.83. It lost 5.1% over the past month.
SO’s POWR Ratings reflect this bleak outlook. The stock has an overall D rating, equating to Sell in our proprietary rating system.
Also, the stock has a D grade for Growth and Value. It is ranked #54 within the F-rated 64-stock Utilities – Domestic industry.
Beyond what we have mentioned above, one can get the additional POWR Ratings for SO (Momentum, Stability, Sentiment, and Quality) here.
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QCOM shares were trading at $112.74 per share on Wednesday afternoon, down $3.26 (-2.81%). Year-to-date, QCOM has gained 3.17%, versus a 9.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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