An old proverb states, “Mach comes in like a lion, out like a lamb.” It refers to the weather. But it can be applied to the stock market in March 2023.
The failure of two regional banks related to tech and cryptocurrency startups has caused turmoil. The government took over SVB Financial’s Silicon Valley Bank (SVB) when it could not raise capital to cover a balance sheet deficit. The firm had greater exposure to people working in startups and venture capital. They withdrew cash from accounts, and SVB sold bonds at a loss to cover the outflows. Signature Bank was also shuttered because of its exposure to cryptocurrencies and withdrawal of deposits.
Because of contagion fears, investors have sold bank stocks and bank exchange-traded funds (ETFs), especially regional banks. At the same time, they have sold the broader market. But the selling is probably overdone, and many companies do not have the same exposure to riskier assets. So this indiscriminate selling presents an opportunity for brave investors.
Below, we discuss five high-yield dividend growth stocks with solid dividend safety for March 2023.
I have written about Verizon (NYSE:VZ) before, but market action has again driven the stock price down and dividend yield up over 7%. Few stocks offer this high dividend combined with dividend growth, safety and undervaluation. That said, Verizon has its challenges with retail cellular subscriber dividend growth.
But statements by the CEO imply the trend may have started to reverse the trend in 2023. In addition, Verizon is reducing capital spending and cutting expenses after two years of elevated levels.
Market action has caused the dividend yield to reach 7.1%, just shy of the highest in the past decade and about 2.5% more than the five-year average. Verizon is a Dividend Contender, with 19 years of increases. The growth is remarkably consistent at about 2% annually. The dividend is supported by a payout ratio of only about 50%. Moreover, it receives a dividend quality grade of B+ and a stable investment-grade credit rating.
Verizon is undervalued based on historical metrics. It trades at a price-to-earnings (P/E) ratio of only about 7.9x, well beneath the five-year and 10-year ranges. Hence, Verizon is an excellent choice for investors seeking income.
Best Buy (BBY)
Best Buy (NYSE:BBY) earns an unlikely place on this list. But the stock is a dividend growth one with a nice yield and excellent dividend safety.
The company is one of North America’s largest electronics and services retailers. Best Buy sells consumer electronics, personal computers, software, mobile devices and appliances and provides services through its 1,100+ stores. In addition, the firm acquired YardBird, expanding into outdoor furniture. The company’s annual sales exceeded $46.3 billion in fiscal 2023.
Best Buy has increased its dividend for 20 years. The declining stock price has increased the dividend yield to nearly 5%. Moreover, dividend safety is excellent, with a payout ratio of about 50% and a net cash position on the balance sheet.
The company trades at a P/E ratio of around 8x, below the five-year range. In addition, investors expect little from the company because of the downturn in electronics spending after the pandemic. But we view Best Buy as an acceptable choice for investors seeking a retailer to add to their passive income portfolio.
Black Hills (BKH)
Black Hills Corporation (NYSE:BKH) is a diversified utility. It transmits and distributes electricity to roughly 220,000 customers and natural gas to about 1,107,000 customers. The firm generates approximately 1,482 megawatts of power and has several natural gas storage sites. The utility company had revenue of about $2,552 million in 2022.
The company is a Dividend King and has raised the dividend for 53 years, making it only one of three electric and natural gas utilities on the list. The dividend yield is now over 4% and growing at about 5% annually. The dividend safety is excellent, with a payout ratio of only about 61%, low for a utility. Also, the dividend quality grade is an A, meaning it is in the 90th percentile.
The stock market decline has made Black Hills’ stock undervalued. The forward P/E ratio is now approximately 15x, below the five-year and 10-year ranges. Investors seeking a high-yield utility stock should consider Black Hills.
LyondellBasell Industries N.V. (LYB)
LyondellBasell Industries N.V. (NYSE:LYB) is a global chemical and refining company. It has six business units: Olefins and Polyolefins – Americas; Olefins and Polyolefins – Europe, Asia, International; Intermediates and Derivatives; Advanced Polymer Solutions; Refining; and Technology.
The company operates in a cyclical industry. But on average, revenue and earnings per share (EPS) have grown over the past decade. However, the firm now faces headwinds from higher input costs and lower demand.
That said, the firm is conservative, with its dividend payout at 38%. The balance sheet is strong, too, with a leverage ratio of about 1.7x and interest coverage of 17x. This safety combined with a dividend yield of nearly 5.5% makes the stock interesting for those seeking income. In addition, the dividend has been increased for 12 straight years at an annualized rate of about 5.8%.
LyndellBasell is probably fairly valued at the moment. But investors seeking to diversify their dividend growth stock portfolio with a higher-yielding stock should consider LyondellBasell.
Arrow Financial Corporation (AROW)
The last stock on this list is Arrow Financial Corporation (NASDAQ:AROW), a small community bank founded in 1851. With a market capitalization of only $419 million, the bank is too small to be considered a regional bank. Furthermore, the bank operates in upstate New York and is not focused on tech startups and cryptocurrency.
Instead, Arrow Financial is a holding company providing consumer and commercial banking, insurance and wealth management.
Arrow Financial is a Dividend Champion with a 30-year streak of dividend increases. The almost 21% decline in the stock price has pushed the dividend yield to over 4%. The payout ratio is modest at about 36%. The bank increases the dividend at a mid-single-digit rate.
The bank is trading below its trailing five-year and 10-year P/E ratio range at about 8.5x. As a result, investors seeking some diversification may want to examine Arrow Financial.
On the date of publication, Prakash Kolli held a LONG position in VZ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines. The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.