Yesterday, U.S. stocks declined broadly due to increasing worries about rising inflation and Fed's planned aggressive interest rate increases to combat inflation. Furthermore, the resurgence of COVID-19 cases in China and other parts of the world and subsequent strict lockdown measures might hurt global economic growth, maintaining pressure on the United States and global equity markets. Over the past five days, the S&P 500 Index has retreated 2.2%, while the NASDAQ Composite Index has declined 2.5%. Furthermore, Morgan Stanley equity strategists predict that the S&P 500 might soon enter negative territory, indicating a 20% decline from its previous highs.
In the current scenario, the investors are being drawn toward dividend stocks because they could potentially hedge against current market uncertainties and generate a regular source of income. The investors' interest in dividend stocks is evident in SPDR S&P Dividend ETF's (SDY) 5.1% gains over the past year.
To dodge the increased market volatility, we think investing in quality dividend stocks Exxon Mobil Corporation (XOM) and International Business Machines Corporation (IBM) could be profitable.
Exxon Mobil Corporation (XOM)
XOM i Irving, Tex., explores, produces, and sells crude oil and natural gas in the United States and internationally. The company operates through three segments: Upstream; Downstream; and Chemical. In addition, it manufactures, trades, transports, and sells petroleum products, petrochemicals, and other specialty products. It has more than 20,528 operated wells with proved reserves.
On April 11, XOM introduced new Exceed™ S performance polyethylene (PE) resins, which reduce the complexity of film formulations and designs, along with improved film performance, conversion efficiency, simplified operations, and packaging durability. This launch might boost the company's growth and revenues.
In February, XOM completed its first commercial sale of certified circular polymers. These circular polymers are produced by Exxtend™ advanced recycling technology for food applications and are purchased by Berry Global, a leading provider of innovative packaging and engineered products.
In its fiscal 2021 fourth quarter, ended Dec. 31, 2021, its net income attributable to ExxonMobil and earnings per common share came in at $8.87 billion and $2.08, respectively, registering an increase of 144.2% and 144.3% from the prior-year period. The company's total cash and cash equivalents rose 54.5% year-over-year to $6.26 billion. In addition, its cash inflow from operations and asset sales increased 264% from the year-ago value to $17.80 billion.
XOM pays $3.52 in dividends annually, yielding 4.3% on its current share price. Its four-year average yield is 5.7%. Its dividend payouts have grown at 3.1% CAGR over the past five years.
The $83.57 billion consensus revenue estimate for its fiscal 2022 first quarter, ended March 31, 2022, represents 41.3% growth from the same period in 2021. The $2.23 consensus EPS estimate for the to-be-reported quarter indicates a 242.7% year-over-year rise. It is no surprise that XOM has surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock gained 29.5% in price year-to-date and 47.7% over the past year. It closed yesterday's trading session at $82.26.
XOM's POWR Ratings reflect this promising outlook. It has an overall B grade, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
XOM has a grade of A for Momentum and B for Growth, and Quality. Within the B-rated Energy - Oil & Gas industry, it is ranked #34 of 96 stocks.
To see additional POWR Ratings (Value, Stability, and Sentiment) for XOM, click here.
International Business Machines Corporation (IBM)
IBM provides integrated solutions and services in the U.S. and internationally. The Armonk, N.Y.-based company operates through four business segments: Software; Consulting; Infrastructure; and Financing. It offers hybrid cloud platform and software solutions, data and artificial intelligence solutions, security software and services, business transformation services, and technology consulting services.
Last week , IBM and Red Hat, Inc. agreed to a five-year collaboration to modernize the U.S. Department of Education's G5 grants management system with open, hybrid cloud technologies, help improve efficiency and effectiveness, and drive transparency. This development is expected to boost the company's growth and profitability.
Earlier this month, IBM unveiled IBM z26, its next-generation system with an integrated on-chip AI accelerator-delivering inferencing. "IBM is the gold standard for highly secured transaction processing. Now with IBM z16 innovations, our clients can increase decision velocity with inferencing right where their mission critical data lives. This opens tremendous opportunities to change the game in their respective industries so they will be positioned to deliver better customer experiences and more powerful business outcomes," said Ric Lewis, SVP, IBM Systems.
IBM's total revenue increased 7.7% year-over-year to $14.20 billion in its fiscal year 2022 first quarter, ended March 31, 2022. Its gross profit grew 4.4% year-over-year to $7.34 billion. Its income from continuing operations rose 64.3% from the prior-year period to $662 million. The company's earnings per share from continuing operations improved 62.2% year-over-year to $0.73.
IBM pays $6.56 as dividends annually. Over the past five years, IBM dividend payouts have grown at a 3.7% CAGR. Its four-year average yield is 4.9%, while its current dividend translates to a 4.7% yield.
Analysts expect IBM's revenue for its fiscal year 2022 to come in at $60.91 billion, representing a 6.2% rise year-over-year. The Street expects the company's EPS for the current year to come in at $9.78, representing a 23.3% increase year-over-year. The company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of IBM have increased 6.4% in price over the past month and 9% over the past six months and closed yesterday's trading session at $139.10.
IBM's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B grade, which translates to Buy in our proprietary rating system.
IBM has a B grade for Value and Quality. Within the Technology - Services industry, it is ranked #22 of 80 stocks.
To see additional POWR Ratings (Stability, Growth, Momentum, and Sentiment) for IBM, click here.
XOM shares were trading at $83.45 per share on Tuesday afternoon, up $1.19 (+1.45%). Year-to-date, XOM has gained 37.89%, versus a -11.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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