The Santa Claus rally is a noted phenomenon whereby the stock market tends to rally during the week leading up to Christmas. Many theories about the reason for the phenomenon have been posited including optimism from the holiday spirit, increased shopping, and businesses settling their books before vacation. Whatever the root cause, the effect is minor with a 0.385% average increase from 2002-2021. So, perhaps a better way to ensure returns is to simply invest in dividend stocks. That way investors secure yields that increase returns without relying on the luck of rising prices. All of the stocks below include a reliable dividend, so purchasing shares is a near guarantee of income.
The stocks listed below are generally strong companies and include dividends with moderate yields. Let’s begin with the highest-yield stock, which is slightly riskier, but strong nonetheless.
| MO | Altria | $45.46 |
| ABBV | AbbVie | $156.90 |
| KMI | Kinder Morgan | $18.80 |
Altria (MO)
Altria (NYSE:MO) stock represents a tobacco producer and cigarette seller that is moving with the times, albeit slower than its rivals. While cigarette smoking continues to decline in the U.S., Altria continues to rely on smoke products for roughly 90% of revenues.
Altria sells Marlboro brand cigarettes in the U.S. market while its rival and former parent company prior to 2008, Phillip Morris International (NYSE:PMI), sells them outside of the U.S. What’s interesting is that Phillip Morris has been quicker to pivot into smokeless products, which currently account for 30% of revenues.
That is causing many pundits to continually view Altria as a dinosaur hanging too heavily onto a slowly dying cigarette market. Further, Juul Labs, Altria’s minority-owned vape brand could soon file for Chapter 11 bankruptcy. In short, Altria has to find new ways to decrease its reliance on waning cigarette sales while developing more relevant smokeless product markets.
That won’t be easy. If Altria develops a winning smokeless product it will likely cut into cigarette brand sales thereby cannibalizing Altria’s biggest revenue stream. So, what then is the reason to believe in Altria? Well, it certainly has assets to make those dreams a reality. It will receive a $2.7 billion payment from PMI by July 2023 for a product tie-up. And it owns 10% of Anheuser-Busch (NYSE:BUD) which it can sell to fund smokeless projects.
Investors should simply buy MO stock because it comes with a massive 8.28% dividend, understanding that share prices are low also, and hope for a turnaround while taking advantage of the income.
AbbVie (ABBV)
AbbVie (NYSE:ABBV) continues to be a very solid firm to invest in, which was confirmed in its latest earnings report.
That report was released in late October with the pharmaceutical company confirming the midpoint for full-year adjusted EPS while simultaneously narrowing its range. In short, AbbVie continues to look like a reliable firm with a solid, dependable business model and a dividend. That’s the kind of investment that wise investors appreciate over the long term.
AbbVie also increased its dividend from $1.41 per share to $1.48. That means every share of ABBV stock currently yields a very respectable 3.7%. Moreover, it’s a safe dividend, having last been reduced in 2013.
AbbVie is also an interesting stock because in the most recent quarter it posted a revenue miss while simultaneously beating earnings expectations. That’s arguably somewhat of a positive for dividend investors since dividends are paid from earnings. It doesn’t mean much since the dividend wasn’t in doubt, but a beat is a beat. And AbbVie did increase the dividend.
AbbVie management has expressed concern that economic headwinds could negatively affect its Botox brand and aesthetics business. However, that business contributes a relatively small amount to overall sales. AbbVie remains among the healthy dividend stocks with an immunology business backed by multiple billion-dollar brands.
Kinder Morgan (KMI)
Kinder Morgan (NYSE:KMI) stock has reasonable upside price potential and a dividend yielding nearly 6%. The company is one of the largest energy infrastructure plays in the U.S., operating 83,000 miles of pipeline, and 141 terminals, among other assets. Investors who believe energy prices will continue to rise should buy KMI, take advantage of strong dividend stocks, and hope for the best.
In this case, the best scenario means rising energy prices. Given how much uncertainty there is globally, that’s proving a very difficult thing to predict. OPEC output cuts favor rising prices, effects from Russia remain difficult to predict because of its overall volatility, and China Covid lockdowns point to decreasing demand, and thus, decreasing prices. Simply put, there are even more confounding variables than usual dictating costs.
That’s why betting on KMI is truly a bet. It trades below $19 at the time of writing and boasts a high analyst price of $24. That is entirely possible in the coming year given the aforementioned price factors.
For its part, Kinder Morgan recently reported 14% higher earnings in Q3 year-over-year. That led to management’s decision to increase the dividend 3% above its Q3 2021 levels and provides a strong argument for investing now.
On the date of publication, Alex Sirois 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.
