Harry Domash's Winning Investing

Four Stocks for a Rough Market

Given world events, the stock market is likely to experience a bumpy ride over the next few weeks. So, what’s an investor to do?

I’m going to describe four relatively high dividend paying (4%+ yields) stocks that, despite a shaky stock market, are unlikely to face serious financial problems that would force them to cut their dividends.

Yes, their share prices will drop in market downturns, but if I’m right, they will eventually recover. In the meantime, we will be collecting substantial dividends.  

Of the four stocks, I picked three because they are profitable companies with strong balance sheets, but stock analysts are not forecasting significant earnings or revenue growth for them this year. In other words, fundamentally strong stocks with low expectations. In my view, that’s a recipe for positive surprises at report time. Sound crazy? We’ll see.  

Fourth Pick First

I’ll start with the exception. My fourth pick is Devon Energy (DVN), an oil and gas exploration and production company. Why? Current world events are likely to drive crude oil and natural gas prices higher. Devon operates in most of the U.S. major oil and gas production areas such as the Permian Basin and Eagle Ford plays.

Analysts are forecasting 60% EPS growth for Devon this year driven by 21% revenue growth. My guess is that Devon beats those numbers.

Devon has a unique dividend policy. It pays a fixed $0.16 per share quarterly dividend and then adds s variable amount reflecting 50% of each quarter’s excess cash after paying capital expenses.

Driven by the closing of a recent acquisition that significantly drove up Devon’s cash flow, those excess cash numbers have increased substantially. Here are the last four quarters’ total payouts, starting with the recently declared December quarter: $1.00, $0.84, $0.49, and $0.34. In this case, the trend is really our friend. Devon’s current dividend yield is 5.0%.

Low Expectation Dividend Payers

HanesBrands (HBI): a global producer of basic innerwear and activewear apparel. Brands include Hanes, Champion, Maidenform and Playtex. Analysts are only looking for low single-digit revenue and earnings growth this year, so upside surprises are possible. Longer-term, analysts are looking for 14% annual EPS growth. Dividend yield is 4.0%.

OneMain Holdings (OMF): Offers subprime auto and personal loans to individuals via a network of 1,600 branches. Once a fast earnings grower, growth has stalled and analysts are forecasting a 10% year-over-year EPS drop for 2022.

Once a prodigious special dividend payer, OneMain has stopped that practice, but on the other hand, recently raised its quarterly dividend by 35% to $0.95 per share, pushing its dividend yield up to 7.4%.

Camping World Holdings (CWH): Camping World is one of the U.S’ largest retailers of recreational vehicles (RVs) and related services and products. It currently operates 185 locations in 40 states, but is rapidly expanding and plans to be operating in 45 states within 18 months.

Despite those plans, analysts are only forecasting 5% revenue growth and no earnings growth for 2022. Last week, Camping World raised its quarterly dividend by 25%, bringing its yield up to 7.8%. 

Those are my ideas, but do your own due diligence. The more you know about your stocks, the better your results.  

published 12/28/22

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