After bottoming in March, 30-year Treasury bond prices have started climbing again. Despite threats of interest rate hikes as early as 2023 and inflation, markets are supporting higher government debt prices. A number of Wall Street analysts are forecasting a rebound in 10-year yields to 1.8% by the end of the year, from the 1.285% seen on July 23.
Stock markets are not selling off at all, either. In a normal market, the rising debt prices would compete with stocks. This time, the dynamics between bonds and stocks are not repeating historical patterns.
The excess government debt purchases created too much liquidity. The Economist recently discussed the role of central banks in the economy and the risks ahead. Dividend income investors would benefit from studying the central bank’s actions. Conversely, readers are better off looking for a better buy price in dividend stocks.
There are seven dividend income stocks to buy as Treasury yields tumble. They are:
- Altria Group (NYSE:MO)
- Consolidated Edison (NYSE:ED)
- Emerson Electric (NYSE:EMR)
- Kimberly-Clark (NYSE:KMB)
- Mondelez International (NASDAQ:MDLZ)
- PepsiCo (NASDAQ:PEP)
- Procter & Gamble (NYSE:PG)
Chart courtesy of Stock Rover
Sorted by valuation, the selected dividend stocks still offer only fair prices. PG stock has the highest value score, compared to the average score of 44/100. Still, all of the picks score a 75/100 or higher on quality. Investors are getting companies that offer an excellent return on invested capital, profitability, and manageable debt-to-equity.
Altria Group (MO)
Altria lost its way in the last few years when it acquired a 35% stake in Juul, an e-vape firm, and a 45% stake in Cronos Group (NASDAQ:CRON). A new management team, led by CEO Billy Gifford, will bring Altria back to its roots.
On July 9, Altria announced a deal to sell its Ste. Michelle Wine Estates Business to Sycamore Partners for $1.2 billion. This will help the company pay down its debt further. In the last quarter, Altria had $7.79 billion in debt, down from over $12 billion the year before. More importantly, CEO Gifford said it will allow the management team to “focus on the pursuit of our Vision to responsibly transition adult smokers to a non-combustible future.”
The wine business probably distracted Altria from its core competency of products that are inhaled. By moving on, it may increase shareholder value by guaranteeing its dividend and buying back shares. Conversely, the wine business offered shareholders a small diversification from the tobacco, vaping and cannabis markets. Fortunately, investors can diversify on their own by buying wine and beer companies separately.
MO stock offers a solid $3.44 annual dividend plus capital appreciation as its business keeps flourishing.
Consolidated Edison (ED)
When Fed Chairman J. Powell introduced the notion of a rate hike, Consolidated Edison stock plunged to as low as $72. ED stock failed to break out above $80 in May. ConEd declared a quarterly dividend of 77.5 cents in April, so with the dividend scheduled, income investors may collect the next payment.
On June 15, Con Edison said it would sell 10.1 million shares. It will invest the net proceeds in its regulated utility subsidiary. The company may also need the funds to invest in thousands of very large batteries. ConEd is housing those batteries in trailer-sized buildings on a small field in Ozone Park, Queens, NY. It has a deal with 174 Power Global to build a facility that stores green energy for 16,000 customers over several hours.
As ConEd invests in green energy initiatives, income investors may look at the stock as an Environmental, Social, and Corporate Governance play. On Wall Street, analysts have a $76.63 price target on ED stock (according to TipRanks).
Emerson Electric (EMR)
Emerson Electric is a consistently strong performer. In the first quarter, the company posted revenue growing by 6.7% Y/Y to $4.43 billion. It earned 97 cents a share. The full-year 2021 guidance is encouraging.
EMR forecast net sales to grow by 6% to 9% for 2021. Adjusted EPS of $3.90 is above the $3.77 consensus. It benefited from orders rising by 4%, offsetting a sales decline for Automation Solutions (as shown on slide 6 in the most recent presentation).
Global markets recovered in the quarter and will give Automation Solutions a lift in the coming quarters. The company said on its conference call that it expects this segment to accelerate in the second half of the year.
The average price target on EMR stock is $105.46.
Looking ahead, EVP and COO Ram Krishnan said the company will benefit from working down inventory in the earlier quarters. Unfortunately, higher steel and copper prices are a headwind but not enough to weaken EMR’s outlook. Furthermore, EMR’s global team has managed the chip and supply shortage well. It found alternatives to steel, plastic, and resin.
After fears of a rate hike surfaced, Kimberly-Clark stock slumped. The company last declared a regular dividend of $1.14 a share on April 29. Besides buying KMB stock for the upcoming dividend, investors have several prospects ahead.
The Huggies and Kleenex maker posted net sales coming mostly from personal care (at 49%, per slide 3). In 2022, KMB wants to leverage its cost and financial discipline while growing its iconic brands. It will expand its markets and invest in its commercial capabilities. For example, it will listen closely to customer needs, targeting markets at the localized level. Its investments in global technology platforms will help it achieve market share gains.
In the first quarter, KMB reported market share gains for diapers. Market share grew by 400 basis points in both Korea and Australia. It also gained market share in China and the U.S. Embracing the digital advertising market will drive sales further. Its momQ direct-to-consumer website is an example of KMB using digital to foster customer relationships.
Mondelez International (MDLZ)
Through its latest acquisitions, Mondelez is fueling its growth in the snack market. It acquired Chipita on May 26 for $2 billion.
Chipita S.A. was first established in Greece over 40 years ago. The firm posted revenue of around $580 million in 2020. Dirk Van de Put, Chairman & CEO, said Chipita will “make them a strong strategic complement to our existing portfolio and future growth ambitions in Europe and beyond.” Investors seeking exposure to the European markets may buy MDLZ stock for income and growth.
The revenue growth will position Mondelez to raise its dividend in the coming quarters. Offsetting potential profits are higher input costs. EVP & CFO Luca Zaramella said that the company hedged its label, logistics, and packaging input costs. Assuming transitory inflation, MDLZ stock will not feel the impact of inflation for the rest of the year.
MDLZ has good visibility into the pipeline of its pricing power for 2022. Management has the flexibility to adjust product prices if input costs rise further.
Per TipRanks, the average price target on MDLZ stock is around $68.00.
Pepsi declared a $1.075 a share quarterly dividend for PEP stock holders of record Sept. 3. The firm owns many popular brands, including Mountain Dew, Pepsi, and Gatorade.
In the U.S., customers are shifting more toward the mobility of the food service and away from the home channel. The Pepsi team continued to innovate its product and strengthen its branding. This will lead to sustained business growth in the next few quarters. CEO Ramon Laguarta said in the Q2/2021 call that Pepsi is taking market share from competitors. Its past investments will pay off, implying continued strong organic sales strength ahead.
Looking ahead, Pepsi forecasted organic revenue will grow by 6% compared to its prior guidance for the mid-single-digit growth. Core EPS will grow by 11%. For the full year, EPS is $6.20.
Procter & Gamble (PG)
Household and personal products giant Procter & Gamble declared a $0.8698 a share quarterly dividend on July 13. While organic sales picked up after Covid, PEP stock investors should expect continued momentum ahead.
P&G’s organic sales growth averaged 7% since 2020, compared to 5% growth in 2018-2019. The strong free cash flow productivity gives the company plenty of growth options. First, it may increase its dividend and buy back stock to reward its income investors. Second, it has the flexibility to invest in its home care and oral care markets.
Through Q3, sales in the home care and oral care segments grew by the most. It reported growth in 9 of the 10 categories. Only baby care sales declined by a negligible 2%. While China is becoming a tougher market for many global firms, P&G held its ground. Sales grew by 10% during the Covid recovery. As the lockdown eases in China and the U.S., investors may expect sustained growth ahead.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
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