Investors are halfway through 2022 and we could compare the experience more to a horror movie – along the lines of “Texas Chainsaw Massacre” – rather than a feel-good flick.
That’s because US markets have been on the decline, sometimes violently so. The S&P 500 Index, for example, had its worst first half since 1970 – falling by some 20.6%.
Meanwhile, it’s been even more painful for the tech-heavy Nasdaq 100 Composite Index. It shed nearly a third of its value in the first half of 2022, declining by 29.4% during the six-month period.
Naturally, perhaps, investors seem to be expecting more pain in the second half of the year. However, as my colleague Billy pointed out in last week’s Chart of the Week, huge first-half market declines don’t always mean negative returns for the second half of the same year.
As long-term investors, it makes sense to think beyond the likely coming recession and focus on which companies will weather the upcoming volatility and come out the other side stronger.
Right now, a lot of these tend to be dividend stocks given they’re more mature businesses.
So, with that, here are my five top dividend stocks that investors should buy and hold in July.
Traditionally, I’ve never been a fan of energy stocks in the oil & gas sector (for long-term structural reasons).
But for investors more inclined to ride on the wave of rising oil prices and limited production capacity, then Chevron Corporation (NYSE: CVX) provides the perfect opportunity for exposure.
That’s because Chevron is primarily an upstream oil & gas company – involved in the exploration and production of oil, such as offshore oil rigs and drilling rigs.
With its huge scale – it’s one of the largest oil & gas firms listed in the US with a market cap of US$280 billion – come several advantages.
One is that it’s a free cash flow machine. As a case in point, during its latest first-quarter 2022 earnings, Chevron generated a monster US$6.1 billion in free cash flow.
Its overall net profit for the period was US$6.26 billion, up about 4x from the US$1.38 billion it posted for the first quarter of 2021.
Unlike prior periods of boom and bust in the sector, this one seems more “sustainable” in that exploration and capex aren’t exploding in relation to rising oil prices.
In fact, Chevron’s global first-quarter production actually fell year-on-year (see below) to just over three million barrels a day, despite the oil price rising by over 50% during the period.
Source: Chevron Q1 2022 earnings presentation
So, with limited capex and much higher cash flows, dividends should be expected right? That’s certaintly been the case with Chevron.
Over the past decade (from 2011 to 2021), Chevron has grown its dividend by a compound annual growth rate (CAGR) of 5.6%.
Currently, despite its shares rising 20% so far in 2022, it still offers investors a respectably attractive dividend yield of 4%.
Accenture Plc (NYSE: ACN) is the second top stock to buy in July. The company, one of the world’s largest technology services and consulting firms, has a stellar track record.
Technology stocks on the whole have taken a beating in the first half of 2022, with Accenture itself down by over 30%.
However, the business is performing admirably. Revenue for its latest third-quarter fiscal year 2022 (Q3 FY22) came in at US$16.2 billion, up 22% in US dollar terms.
Year-on-year revenue growth was also pretty even across its main industry groups; Communications, Media & Technology (31%), Financial Services (24%), Health & Public Service (19%), Products (31%), and Resources (26%).
Added to that, the company sees compelling growth opportunities for its services (even amid a potential recession), with areas such as cloud and cybersecurity just some of the most promising strategic priorities.
While the stock only yields 1.4%, it just raised its latest dividend per share (DPS) by 10% year-on-year and has consistently grown its dividend over the past decade at a double-digit percentage rate.
3. Medical Properties Trust
Up next we have healthcare-oriented REIT Medical Properties Trust (NYSE: MPW), which owns a portfolio of 440 healthcare properties across the world, including hospitals in 32 US states, seven European countries, Australia and South America.
With its total portfolio worth US$22.2 billion, most of its properties are “general acute care hospitals” which cater to surgery, acute medical conditions or injuries, and are usually for short-term stays.
It manages to generate a stable income profile by leasing its properties to operators with long-term net lease agreements in place.
As a result, it has an enviable track record over the past decade with Medical Properties Trust shares delivering a total return of 356% since 2012.
More tellingly, it has managed to consistently grow it adjusted funds from operations (AFFO) and has a healthy payout ratio of around 80%, which is in fact lower than what you would normally expect for a REIT in Singapore where the minimum in 90%.
However, that flexibility has allowed it to be conservative and also given the REIT the leeway to expand its dividend by around a 4% CAGR over the past decade.
Who doesn’t love a good dividend-paying utility stock in times of uncertainty? That’s what American Water Works Company Inc (NYSE: AWK) provides in buckets.
The company offers water and wastewater services to a number of states in the US, serving around 3.4 million customers.
While many of the states in operates in regulate utilities, that doesn’t mean American Water Works can’t tap into growth.
In fact, regulated utilities in the US tend to have a minimum growth rate built in in terms of price rises – allowing them to be recession-resistant to some degree.
American Water Works is no different. The company’s most recent first-quarter 2022 earnings were impressive, with diluted earning per share (EPS) hitting US$0.87, up 19% year-on-year.
It also affirmed its 2022-2026 financial target for EPS CAGR of 7-9%, which should keep it broadly in line with the above-average inflation numbers we’re seeing today.
The utility also raised its dividend 8.7% year-on-year, marking its 14th consecutive year of dividend hikes. At its current price, American Water Works shares are offering a dividend yield of 1.8%.
5. T. Rowe Price
Last but not least is giant asset and investment manager T Rowe Price Group Inc (NASDAQ: TROW).
While exchange-traded funds (ETFs) are traditionally thought to have “eaten the lunch” of asset managers, T Rowe Price has managed to stay relevant given its impressive – and consistent -performance track record across asset classes.
Added to that is the fact that the company is a behemoth with over US$1.4 trillion in assets under management (AUM) globally.
While overall net client outflows hit US$5.3 billion during the first quarter of this year – given the dire market conditions for equities – there were net inflows into its multi-asset, fixed income and alternative products divisions.
Even amid this volatility, net revenues for the first quarter hit US$1.9 billion, up around 2% year-on-year.
Finally, T Rowe Price pays out a generous – and growing – dividend. Every year since going public in 1986, it has raised its dividend meaning it’s now classed as a “Dividend Aristocrat”.
The firm’s latest dividend hike was an impressive 11% year-on-year increase, and while shares are down 40% so far in 2022, its 4.1% dividend yield is looking more attractive than ever.
Focus on the dividends and income
While the stock market today can seem like a scary place altogether, it’s worth remembering that over time it will always recover.
In the meantime, by investing in dividend stocks you can be essentially “paid to wait” for that inevitable recovery.
With Chevron, Accenture, medical Properties Trust, American Water Works and T Rowe Price, income investors can buy into a healthy mix of higher-yielding dividend and dividend growth stocks.
Disclaimer: ProsperUs Head of Content & Investment lead Tim Phillips owns shares of Accenture Plc.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.
In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.