The Fed’s persistent hawkish stance makes a recession inevitable next year. Given the backdrop, investors might consider investing in quality stocks of UnitedHealth (UNH), PepsiCo (PEP) and Darden Restaurants (DRI) to protect their portfolios from the recession blues. These stocks have strong dividend-paying records. Keep reading….
Although the Federal Reserve announced a 50 basis point interest rate hike last weekBreaking a streak of four consecutive 75 basis point rate hikes, officials said they plan to continue raising rates through next year, with no cuts through 2024. According to its median forecast, the the terminal rate could reach 5.1% in 2023.
Amid back-to-back rate hikes, the odds of a recession are rising rapidly. According to the New York Fed’s recession probability model, there is a 38% chance of a recession in 2023.
Additionally, DataTrek co-founder Nicholas Colas said, “This is a clear indication that high short-term interest rates will cause a recession over the next 12 months. .”
Given the uncertainties, quality stocks UnitedHealth Group Incorporated (A H), PepsiCo, Inc. (DYNAMISM) and Darden Restaurants, Inc. (DRI) could help investors survive a recession, due to their strong fundamentals and track record of paying dividends.
UnitedHealth Group Incorporated (A H)
UNH operates as a diversified healthcare company in the United States. It operates through four segments: UnitedHealthcare; OptumHealth; OptumInsight; and OptumRx.
On November 16, 2022, UNH and Life Time Group Holdings, Inc. (LTH) announced an extension of their partnership to include access to all Life Time locations, helping even more people stay active and improve their physical and mental well-being.
This will help UNH deliver added value to its customers, thereby promoting brand equity appreciation and market share expansion.
UNH has paid dividends for 20 consecutive years. Over the past three years, UNH’s dividend payouts have increased by 15.63% CAGR. While UNH’s four-year average dividend yield is 1.36%, its current dividend translates to a yield of 1.25%.
UNH’s total revenue was $80.89 billion for the third quarter ended September 30, 2022, up 11.8% year-over-year. Its net profit rose 28.7% year-over-year to $5.26 billion. Also, his PES settled at $5.55, up 29.7% year-over-year.
Analysts expect UNH’s revenue to grow 12.6% year-over-year to $323.82 billion for the current year. Its EPS is expected to increase 15.8% year-over-year to $22.03 in 2022. It has exceeded EPS estimates for the past four quarters. Over the past six months, the stock has gained 7.6% to close the last trading session at $527.09.
UNH’s strong fundamentals are reflected in its POWR Rankings. The stock’s overall A rating indicates a strong buy in our proprietary rating system. POWR ratings rate stocks on 118 different factors, each with its own weighting.
UNH gets a B for Growth, Stability, Sentiment, and Quality. In category A Medical – Health insurance industry, it is ranked #2 out of 11 stocks. Click here for additional POWR ratings for value and momentum for UNH.
PepsiCo, Inc. (DYNAMISM)
PEP manufactures, markets, distributes and sells convenient food and beverages worldwide. It operates through seven segments: Frito-Lay North America; Quaker Foods North America; PepsiCo Beverages North America; Latin America; Europe; Africa, Middle East, South Asia; Asia-Pacific, Australia and New Zealand; and China Region.
On December 5, 2022, PEP announced a new packaging goal to double the scale of reusable packaging designs from 10% to 20% by 2030. This announcement aligns perfectly with the sustainable packaging vision of the company.
PEP has paid dividends for 50 consecutive years. Over the past three years, PEP’s dividend payouts have grown at a CAGR of 6.1%. While PEP’s four-year average dividend yield is 2.79%, its current dividend translates to a yield of 2.52%.
PEP net revenue was $21.97 billion for the third quarter ended September 3, 2022, up 8.8% year-over-year. Its gross profit rose 8% year-over-year to $11.66 billion. Additionally, its operating profit was $3.53 billion, up 6.1% year-on-year.
Analysts expect PEP’s revenue to grow 7.1% year-over-year to $85.09 billion in 2022. Its EPS is expected to rise 8.3% year-on-year on the other to reach $6.78 in 2022. It has exceeded EPS estimates for the past four quarters. Over the past six months, the stock has gained 11.8% to close the last trading session at $181.09.
PEP’s POWR ratings reflect this promising outlook. The stock has an overall B rating, which equates to a buy in our proprietary rating system.
PEP has an A rating for quality and a B for growth and stability. It is ranked No. 9 out of 33 stocks in the A rating Beverages industry. Click here for additional POWR ratings for value, sentiment and momentum for PEP.
Darden Restaurants, Inc. (DRI)
DRI, through its subsidiaries, owns and operates full-service restaurants in the United States and Canada. It is a full-service restaurant business through four segments: Olive Garden, LongHorn Steakhouse, Fine Dining and Other Business.
On December 16, 2022, Rick Cardenas, President and Chief Executive Officer, said, “I am pleased with our results this quarter. All of our brands performed at a high level while remaining focused on our Back-to-Basics operating philosophy rooted in food, service and ambience.”
Over the past three years, DRI’s dividend payouts have grown at a CAGR of 12.3%. While DRI’s four-year average dividend yield is 2.57%, its current dividend translates to a yield of 3.49%.
DRI’s total sales were $2.49 billion for the second quarter ended November 27, 2022, up 9.4% year-over-year. Its EPS was $1.52, up 2.7% year-over-year.
DRI’s revenue is expected to increase 8% year-over-year to $10.4 billion in 2023. Its EPS is expected to increase 5.7% year-over-year to 7.81 $ in 2023. Over the past six months, the stock has gained 19.3% to close the last trading session at $137.31.
DRI’s overall B rating equates to a buy in our POWR rating system. The stock also has a B rating for quality. It is ranked No. 10 out of 46 stocks in the B rating Restaurants industry.
Beyond what is stated above, we also rated DRI for Value, Stability, Sentiment, Growth and Momentum. Get all DRI ratings here.
UNH shares were trading at $524.09 per share Friday morning, down $3.00 (-0.57%). Year-to-date, UNH has gained 5.71%, versus a -19.03% rise in the benchmark S&P 500 over the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master’s degree in commerce, she aspires to make complex financial issues understandable to individual investors and help them make appropriate investment decisions.
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