Despite the positive economic data reflecting inflation is easing, the Fed’s median forecast released last week represented a hawkish tone. Fed Chair Jerome Powell emphasized hiking interest rates to as high as 5.1% into the new year, triggering jitters in the U.S. market.
With the broader indexes falling considerably last week, traders realized that next year is going to be painful. Michael Antonelli, managing director at Baird, said, “The market is not worried about inflation anymore. It’s worried about looming recession or the Fed going too far.”
Concerns over the possible continuation of aggressive interest rate hikes, looming recession fears, and signs of an economic slowdown in China are expected to keep the markets volatile in the near term. This, in turn, necessitates the need to load up some quality stocks with a defensive nature that could thrive in an adverse economic environment.
Given this backdrop, investors should consider buying dividend-paying stocks, The Procter & Gamble Company (PG) and Darden Restaurants, Inc. (DRI), due to their strong fundamentals and solid growth prospects.
With the holidays approaching, consumers are hurrying to get their shopping done. The Census Bureau reported that sales at grocery stores in November rose 0.8% sequentially and 8.1% year-over-year to $81.63 billion. The holiday season is expected to bode well for PG and DRI.
The Procter & Gamble Company (PG)
PG offers branded consumer packaged goods to consumers across the world. It operates through Beauty, Grooming, Health Care, Fabric & Home Care, and Baby, Feminine & Family Care segments.
For the fiscal 2023 first quarter ended September 30, 2022, PG’s healthcare sales grew 3% year-over-year to $2.76 billion, while its net sales increased 1% year-over-year to $20.61 billion. The company’s net earnings and EPS amounted to $3.96 billion and $1.57, respectively, for the same period.
As of September 30, 2022, the company’s current assets stood at $22.52 billion, compared to $21.65 billion as of June 30, 2022.
PG has raised its dividends for 66 consecutive years. It pays a $3.65 per share dividend annually, which translates to a 2.43% yield on the current price. Its four-year average dividend yield is 2.46%. Its dividend payments have grown at CAGRs of 6.9% and 5.7% over the past three and five years, respectively.
Analysts expect the company’s EPS and revenue for the fiscal year ending June 2024 to increase 7.3% and 3.6% year-over-year to $6.26 and $82.79 billion, respectively. Furthermore, PG has surpassed its consensus EPS in three of the four trailing quarters.
The stock has gained 12.8% over the past six months to close the last trading session at $150.40.
PG’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Sentiment and Quality. It is ranked #9 out of 58 stocks in the Consumer Goods industry. Click here to see the other ratings of PG for Growth, Value, and Momentum.
Darden Restaurants, Inc. (DRI)
DRI operates as a full-service restaurant company through four segments: Olive Garden, LongHorn Steakhouse, Fine Dining, and Other Business. The company features a portfolio of differentiated brands: Olive Garden, LongHorn Steakhouse, Cheddar’s Scratch Kitchen, Yard House, The Capital Grille, Seasons 52, Bahama Breeze, and Eddie V’s.
On December 16, DRI’s Board of Directors declared a quarterly cash dividend of $1.21 per share on its outstanding common stock, payable to shareholders on February 1, 2023. Its four-year average dividend yield is 2.57%, and its forward annual dividend translates to a 3.46% yield. Its dividends have grown at 12.3% and 14.2% CAGRs over the past three and five years, respectively.
For the second quarter ended November 27, 2022, DRI’s total sales increased 9.4% year-over-year to $2.49 billion, driven by a blended same-restaurant sales increase of 7.3% and sales from 35 net new restaurants. Its net earnings amounted to $187.20 million, while its EPS came in at $1.52, indicating a 2.7% year-over-year increase.
The consensus revenue estimate of $2.72 billion for the third quarter ending February 28, 2023, represents a growth of 11.1% from the same period last year. The consensus EPS estimate of $2.21 for the current quarter indicates a 14.4% increase year-over-year. Over the past six months, the stock has gained 25.1% to close the last trading session at $138.45.
DRI’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Quality and is ranked #10 out of 45 stocks in the B-rated Restaurants industry. Click here to see the other ratings of DRI for Growth, Value, Momentum, Stability, and Sentiment.
PG shares were trading at $150.73 per share on Tuesday afternoon, up $0.33 (+0.22%). Year-to-date, PG has declined -5.57%, versus a -18.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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