No Brainer Dividend Stocks for the End of 2022

The end of the year is usually an excellent time to look for deals. In 2022, a bear market caused by rising interest rates in response to the highest inflation in four decades punished stock prices, asserts income specialist Prakash Kolli, editor of Dividend Power.

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A recent reversal in the downward trend has caused a slight recovery. But some stocks that were oversold during the year are still down considerably and potentially undervalued. So it’s an excellent time to research potential dividend stocks for the end of 2022.

Below we discuss three quality dividend stocks with solid yields and growth with acceptable valuations. We focus on stocks with reliable safety and the potential for long-term returns. We consider these to be “no brainer” dividend stocks.

Verizon Communications (VZ) is a stock we have discussed before. But the combination of undervaluation and high dividend yield make it attractive. The stock price has bounced back a bit in the past few weeks but is still down ~27%. Verizon is significantly undervalued based on historical metrics.

The company provides cellular and broadband services to retail and business customers. Verizon serves roughly 120 million wireless connections, 6.7 million FiOS and other broadband connections, and approximately 25 million fixed-line telecom connections. Total revenue was $133,613 million in 2021, and the last 12 months, making the firm the second-largest telecommunication company in the United States.

Verizon is paying a ~6.8% dividend yield, just below the recent peak and nearly the highest in a decade. Verizon reliably increases the dividend by 2% annually. It has done so for 18 years, making the stock a Dividend Contender. Moreover, the dividend safety is conservative, with a payout ratio of approximately 47%, alleviating the fear of a dividend cut.

The combination of a bear market and weak retail cellular growth has pressured the stock price while simultaneously increasing the dividend yield and lowering the valuation. Verizon is trading at an earnings multiple of ~7.4X, almost the lowest in the past ten years. The stock is a good one for investors seeking dividend growth and income.

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Procter & Gamble (PG) — which sells consumer products globally — is one of the most famous Dividend Kings and Dividend Aristocrats. it is the second dividend stock for the end of 2022. The stock is rarely undervalued. But it is down about 13.5% in 2022, possibly making it a good time to acquire shares.

Procter & Gamble has one of the longest dividend streaks over 100 years. Also, it has paid a rising dividend for 66 years, one of only a few companies to achieve the 60-year mark.

Additionally, the dividend growth has been slow and steady at roughly 4.9% in the past 5-years and around 5.2% in the past ten years. The forward dividend yield is about 2.6%, supported by a reasonable 60% payout ratio. This is near the higher end of our target, but consistent earnings and cash flow limit risk.

Despite the lower stock price in 2022, Procter & Gamble is trading at a price-to-earnings ratio of 24.3X. This value is not a great deal, but it is within the 5-year and 10-year ranges. The main interest, though, is low volatility combined with a growing dividend.

Microsoft (MSFT) was caught in the technology sector downdraft. As a result, the stock is down approximately 28% year-to-date. But unlike some other tech stocks, Microsoft is wildly profitable and still growing revenue. Moreover, it was not bloated with too many employees, a sign of experienced and prudent management.

Microsoft is a global leader in personal and enterprise software. Also, it sells gaming hardware and tablets. Major brands are Windows, Outlook, Skype, LinkedIn, SharePoint, Surface, Bing, Xbox, etc. Total revenue was $198,270 million in the fiscal year 2021 and $203,075 million in the past 12 months.

Surprisingly, Microsoft is a dividend growth stock. The company started paying one in 2012 and has raised it each year. The growth rate has been ~13% in the past decade. The modest payout ratio of about 29% suggests many more future increases.

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Microsoft is not a high-yield stock. It currently yields 1.00%, below the 5-year average. However, the main interest is the rock-solid dividend safety supported by an AAA-rated balance sheet and double-digit dividend growth. The stock is undervalued based on historical ranges. The forward P/E ratio is 25.9X, which seems high. But it is within the 5-year and 10-year ranges.

(Disclosure: Prakash Kolli is long VZ, PG, and MSFT.)

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