With uncertainty baked into the possibilities for the new year, investors may want to shift their focus toward the best dividend stocks to buy. Now, don’t misinterpret what I’m trying to say: it’s not that you should avoid growth-oriented names altogether. Rather, it’s a prudent idea to pivot your portfolio to a balanced profile. That way, you can accommodate any variability to your market thesis.
While no one can say with absolute authority what will happen in 2023, investors should stay on their guard. For one thing, you have a massive geopolitical conflict in Europe that may not be resolved anytime soon. Further, the Federal Reserve still has much work to do to clamp down on excess liquidity. It’s not out of the realm of possibility, then, to see deflationary pressures.
Speaking of deflation, eroding economic sentiment contributed to mass layoffs. Having to digest multiple market catalysts, investors should focus on the best dividend stocks to buy for 2023.
American Electric Power
Southern Co (SO)
A gas and electric utility holding company, Southern Co (NYSE:SO) commands extraordinary relevance because of its footprint. According to its public profile, Southern is the second largest utility company in the U.S. in terms of customer base, as of 2021. Although it’s a vital component of the economy, SO didn’t get much love these days. In the trailing year, shares slipped a bit under parity.
Nevertheless, this circumstance may change for the better because of Southern’s migration-related advantage. Situated in the southern portion of the U.S. (hence its name), it commands a huge coverage map in Georgia. This is significant because Georgia represents one of the states that millennials are moving to. In particular, young folks have streamed into Atlanta.
As a passive income provider, Southern offers a very attractive profile. Currently, the company carries a forward yield of 4.05%. This ranks a bit higher than the utility sector’s average yield of 3.75%. As well, Southern features 21 years of consecutive annual dividend increases, making it an attractive candidate for best dividend stocks to buy.
American Electric Power (AEP)
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A major investor-owned electric utility, American Electric Power (NASDAQ:AEP) electricity to more than five million customers in 11 states. Like Southern Co above, American Electric benefits from millennial migration trends. Featuring a coverage map that includes much of the Midwest and eastern states, AEP enjoys a clear advantage.
With costs of living skyrocketing in major metropolitan areas, young folks have found refuge in relatively more rural areas. For instance, Virginia – where AEP features a strong presence – offers an attractive alternative to pricey regions. Stated differently, American Electric conducts business where the money will be, not necessarily where it is right now.
Just as well, the company provides a solid dividend with a forward yield of 3.6%. Also, it features 13 years of consecutive annual dividend increases. Admittedly, its payout ratio of 58.78% is a bit on the high side. Nevertheless, it’s within a reasonable level as to not spark alarm bells. Finally, Wall Street analysts love AEP, rating it a consensus strong buy. Thus, it makes a great case for best dividend stocks to buy.
Phillips 66 (PSX)
A hydrocarbon energy giant, Phillips 66 (NYSE:PSX) specializes in the downstream component of the industry’s value chain. This component covers operations like refining and marketing, as opposed to upstream (exploration and production) and midstream (storage and transportation). Fundamentally, as society reaches full normalization, PSX may skyrocket. Indeed, in the trailing year, it’s already up over 29%.
But prospective investors shouldn’t be discouraged. As companies start recalling their workers back to the office, traffic volume will surely increase. For instance, Disney (NYSE:DIS) generated headlines recently when CEO Bob Iger basically put an end to remote operations. While some intrepid workers may go independent and join the gig economy, I’m sure most will fall in line.
And with that, you’re talking about a high-probability fundamental catalyst. From this angle alone, PSX ranks among the best dividend stocks to buy. Still, as a bonus, the company carries a forward yield of 3.63%. And a relatively low payout ratio of 31% presents little concern about sustainability.
An oddity among the best dividend stocks to buy, I genuinely believe investors should watch Whirlpool (NYSE:WHR) closely this year. Let me be the first to say that appliance manufacturers represent a boring component of the economy. As well, WHR hasn’t exactly been a friend to long-term stakeholders. In the trailing year, shares slipped over 27%. And in the trailing five years, they’re down 19%.
So, what gives? As you know, anything mechanical eventually breaks down. Further, the complexities involved in modern appliances and equipment make (in some cases) out-of-warranty repairs financially non-sensical. Plus, if an appliance breaks down, you tend to want a new one.
Now, during the first three years of the coronavirus pandemic, the work-from-home pivot likely accelerated home appliance usage (as opposed to in-office appliances). Therefore, the extra, unplanned usage may accelerate the underlying appliances’ breakdown period.
Cynically, then, Whirlpool enjoys upside potential. While you’re waiting for this thesis to pan out, the company offers a forward yield of 4.64%. It’s strange but WHR could be one of the best dividend stocks to buy.
H&R Block (HRB)
One of the companies that aligns strongly with the gig economy, H&R Block (NYSE:HRB) ranks among the best dividend stocks to buy. At the very least, you should monitor its progress this year. Granted, its core tax consultancy business doesn’t signal a particularly exciting business. However, it’s going to be among the most relevant, depending on how serious workers want to consider the gig economy.
Already, we’re seeing reports globally about people quitting rather than going back to the office. In that case (in the U.S.), gig workers must then transition from filing W-2 forms with the IRS and move to the (dreaded) 1099. Unfortunately, I don’t have the time to go over all the differences. However, the key point centers on disclosures. With 1099 forms, you must make more of them.
Further, because gig workers report their earnings and legal deductions, mistakes may trigger an IRS action. Therefore, it’s vital that these independent contractors know what they’re doing. H&R Block can help. Plus, the company offers a forward yield of 3.10%.
Tyson Foods (TSN)
Although Tyson Foods (NYSE:TSN) represents a vital category in the economy, it hasn’t had a great performance in 2022. Indeed, in the trailing year, TSN gave up nearly 29% of equity value. It’s not just related to technical rumblings. Fundamentally, investors lost confidence in Tyson because of growing margin pressure and operational issues.
From this basis, Tyson represents one of the riskier names among the best dividend stocks to buy. At the same time, it’s difficult to be overly negative on food-related enterprises. Unlike companies in the consumer discretionary space, no trade down (cheaper alternative) exists for food. You’re either eating or you’re not.
Financially, the troubles did make TSN more attractive. Currently, the company sports a decently stable balance sheet and solid profitability. Better yet, the market prices TSN at 9.65-times forward earnings, below the sector median of 16 times.
Finally, Tyson carries a forward yield of just under 3%. Also, it features 11 years of consecutive annual dividend increases. Thus, it’s a solid contrarian candidate for best dividend stocks to buy.
Kraft Heinz (KHC)
A multinational food company formed by the merger of Kraft Foods and Heinz, Kraft Heinz (NASDAQ:KHC) presents an intriguing narrative for the best dividend stocks to buy. Primarily, it features a generous rate of passive income. At the same time, KHC has been a proven winner. You’re probably not going to get rich off the shares. However, I’ll take a trailing-year performance of 9.6% any time, particularly when the benchmark equities index slipped sharply.
Fundamentally, investors should pay close attention to KHC because of the trade-down effect. Assuming economic conditions worsen from here, consumers will start cutting unnecessary expenses and seeking cheaper alternatives to desired products/services. However, you can’t trade down from making your own food at home. Therefore, Kraft Heinz’s core grocery products-related business should blossom.
While investors wait for this plotline to pan out, they can collect some sweet passive income. Currently, Kraft Heinz carries a forward yield of 4%. And while its payout ratio at 55.24% is somewhat elevated, it’s arguably not going to cause serious concern. Thus, KHC ranks among the best dividend stocks to buy.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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