Ex-dividend this week:
3 Contenders: $Apple(AAPL)$ $Pfizer(PFE)$ $ASML Holding NV(ASML)$ will pay dividend on Nov 3 and Nov 4, respectively.
1 Challenger: $Intel(INTC)$ will pay dividend on Nov 4.INTC Cash flow has fallen off a cliff in 2022
TTM
CFfO down to ~$14 B
FCF at negative ~$13 B
1.Apple
Compared to PepsiCo, Apple is relatively new to the dividend party. But it makes up for that shorter track record by putting a long list of unique assets into an income investor's portfolio.
The tech giant has one of the most valuable brands in the world, for example. It trounces consumer tech rivals when it comes to profit margin and customer satisfaction, too, helping explain why famed investor Warren Buffett issuch a fan of the stock. And Apple's financial strength is unmatched, with $79 billion in profit over the last nine months compared to $74 billion in the year-ago period.
Sure, Apple's business would be sensitive to a recession. That risk is a key reason the stock price is down over 20% so far in 2022. However, savvy investors can seek to capitalize on the sour mood on Wall Street today with an eye toward Apple's long-term outlook. The company has a clear path toward rising profitability as it sells more services. And its diverse lineup of consumer tech products should help it maintain momentum through a consumer spending pullback.
Apple's dividend likely isn't the main reason an investor would buy this stock. It yields only 0.6% today, after all, compared to PepsiCo's 2.6% yield. Still, combined with its exciting growth outlook and gushing cash flow, that dividend is a solid bonus for owning the stock.
Reinvest the dividends, meanwhile, and you'll get a chance to automatically accumulate more shares during bear markets like this, amplifying positive returns once investors' attitudes turn bullish again.
2.Pfizer
Pharmaceutical giant Pfizer is down 26% this year, performing in line with the broader markets. However, given the popularity of its COVID-19 vaccine and the company's ability to adapt to changing conditions, it's a bit surprising that investors are only valuing the business at nine times earnings. Although its bottom line will likely decline as fears around the coronavirus continue to subside, itsCOVID-related revenuewon't disappear entirely; health officials are still administering booster shots, and there's still no telling if and when that will end.
Plus, the low earnings multiple suggests that a lot of bearishness is built into the stock. But that shouldn't be the case because Pfizer has been busy acquiring multiple companies within the past year, expanding its business and making it more diversified for the future. In June, it closed on the purchase of ReViral, a clinical-stage company that focuses on therapeutics for the respiratory syncytial virus (RSV). Pfizer currently has multiple trials ongoing that relate to RSV.
And there will be more opportunities out there for the drugmaker. The company has a whopping $33.3 billion in cash and short-term investments on its books as of July 3. For a business that consistently generates positive free cash flow, Pfizer's in great shape to pursue growth opportunities while also paying a solid dividend, which yields 3.7% today -- more than double the S&P 500 average of 1.8%. Its low payout ratio of 31% also suggests Pfizer has plenty of room to boost its payout in the future. In the past five years, the company has increased its dividend by 25%.
3.ASML
ASML has shown strong results in the third quarter of 2022. It posted €8.9 billion in net bookings and generated €5.8 billion in revenues. The company also repurchased €1 billion worth of its common shares during the quarter.
Though ASML does not hold any dividend growth track record, the company has been paying regular dividends to shareholders since 2013. It currently pays a quarterly dividend of €1.37 per share for a dividend yield of 1.40%, as of October 25.
In October, JPMorgan maintained an Overweight rating on ASML with a €690 price target, highlighting the company's recent quarterly earnings.
As of the close of Q2 2022, 47 hedge funds tracked by Insider Monkey owned stakes in ASML, up from 46 a quarter earlier. These stakes have a total value of over $3.6 billion. With roughly 4.6 million shares,Fisher Asset Managementwas the company’s leading stakeholder in Q2.
In addition to $American Express(AXP)$ $Procter & Gamble(PG)$ $Bank of America(BAC)$, ASML is also gaining investors' attention in 2022.
4.Intel
The scope of Intel's cost-cutting plans, which include layoffs, portfolio cuts, more aggressive cost controls, and improved sales and marketing efficiencies, will help the company keep its free cash flow from falling too deeply into the red. For this year, free cash flow is expected to be a loss of between $2 billion and $4 billion.
Assuming Intel succeeds in not burning through too much cash, the balance sheet is fully capable of supporting the dividend for the time being. At the end of the third quarter, the company had $24.5 billion of cash and investments along with $39.5 billion of debt. Dividends eat up approximately $6 billion in cash each year, so a few years of dividend payments without any free cash flow is certainly doable.
Free cash flow will rebound once Intel completes its current investment cycle and reduces its capital spending. Intel's manufacturing push is a multi-year effort, so investors can expect elevated capex for at least a few years. A rebound in sales of PC and server chips will also help. While end market demand may remain weak for a while, once Intel's customers finish reducing their own inventories, Intel's sales will better align with actual end market demand.
If one of Intel's priorities is to maintain the dividend, it can certainly do that.
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