Dividend stocks have become the preferred investment choice for many investors due to the array of benefits they offer.
These stocks provide regular cash payouts, allowing investors to enjoy a steady stream of income even during market downturns. Additionally, dividends offer a cushion against price volatility, providing portfolio stability.
In this context, renowned US financial firm Morningstar released a YouTube video on Thursday, June 8, revealing its top 3 dividend stock picks for June 2023. Namely, Morningstar’s three preferred dividend stocks for this month include Exxon Mobil (NYSE: XOM), Pfizer (NYSE: PFE), and IBM (NYSE: IBM).
Exxon Mobil (NYSE: XOM)
With a market cap of more than $437 billion, is the largest energy company in the US and the fourth biggest in the world.
Exxon’s stock found itself in Morningstar’s selection of favored dividend stocks investors should monitor in June, with the investment research firm noting a “sharp reduction in debt and improving cash flow profile,” and, most importantly, expectations that the company’s dividend growth will accelerate.
During Exxon’s earnings call on April 28, Exxon said that 40% of its shareholders rely on its dividend payments, reiterating the importance of dividends remaining competitive and growing, Morningstar pointed out.
At press time, Exxon’s shares were trading at $108.19, down 0.31% in the past 24 hours. Over the past week, the stock gained more than 6%, though it still remains in red year-to-date.
Pfizer (NYSE: PFE)
Pfizer, one of the world’s leading drugmakers, has had an annualized dividend growth over the past 5 years.
Rated as a 4-star stock by Morningstar, Pfizer reiterated its three pillars for capital allocation, including “reinvesting in our business, growing and paying dividends, and repurchasing our shares,” the drugmaker’s CFO said during the company’s earnings call on May 2, 2023.
While Pfizer’s looming $43 billion acquisition of Siegen could weigh on Pfizer’s dividend payments, CFO Dave Denton said he “expects the company to return to a more balanced capital allocation mix,” said Morningstar’s David Harrell.
“Pfizer generally targets a 50% payout ratio, and the current dividend rate represents 49% of consensus earnings for 2023, so I believe near-term dividend growth will be modest.”– Harrell added.
At publication time, PFE was standing at $39.09, up 0.51% in the past 24 hours. The stock rose over 2% in the past week, but remains sharply down since the start of 2023, at -23.7%
IBM (NYSE: IBM)
Finally, IBM, a leading global manufacturing company, currently provides “a forward yield of more than 5%, which is relatively high for its sector as many tech stocks don’t pay a dividend, and those that do often provide a fairly modest yield,” said Harrell.
A forward yield refers to the anticipated annual return on an investment based on the projected future dividends or distributions.
While investors should not expect substantial future dividend growth, IBM has “provided smaller dividend increases in recent years, including a 0.6% hike declared last month, with 2.2% annualized dividend growth over the past 5 years.”
Moreover, Morningstar analysts expect a similarly modest dividend growth rate for the following five-year period, Harrell noted.
At press time, IBM’s shares were trading at $134.41, almost unchanged on the day.
The stock gained more than 10% in the past month but is down 5% since January 1, 2023.
In conclusion, dividend stocks have gained popularity among investors for their reliability and resiliency. These three stocks highlighted by the American financial company are worth keeping an eye on this to see whether they can provide a steady stream of income and a sense of stability to your portfolio.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.