AMGN - 5 Top Dividend Stocks For July 2023

2023-07-05 09:42:00 ET

Summary

• The S&P 500 has gained 16% through the first half of 2023, with the top 10 positions accounting for roughly 90% of the performance.
• All five of these stocks appear to be trading at great valuations.
• The article concludes by questioning the sustainability of the stock market's strong performance in the first half of the year.

We have reached the halfway point for 2023, and the S&P 500 has gained ~16%, which is an incredible first half. To earn 16% in an entire year would be phenomenal performance, but to do it in just six months is quite a run.

With that being said, it is hard not to not think about the market being a little overdone. After all, the top 10 positions within the S&P 500 has accounted for roughly 90% of the performance of the S&P 500. Here is a look at the top 10 positions and their year to date returns:

• Apple ( AAPL ): +49%
• Microsoft ( MSFT ): +42%
• Alphabet ( GOOGL )( GOOG ): +36%
• Amazon ( AMZN ): +55%
• NVIDIA ( NVDA ): +189%
• Tesla ( TSLA ): +113%
• Meta Platforms ( META ): +138%
• Berkshire Hathaway ( BRK.B ): +10%
• UnitedHealth Group ( UNH ): -9%

Eight of the top 10 positions are in the positive for the year, and of the top eight in terms of performance, the worst performer saw their stock price rise by 36%. That right there tells you how top heavy this move has been in the stock market.

That is one way to look at it, the other is to look at the Invesco S&P 500 Equal Weight ETF ( RSP ).

As you can see, RSP returned only a 5.9% return through the first half, which is a good start, but it lags the S&P 500 by a very wide margin.

As such, I continue to look for high-quality stocks trading at intriguing valuations, and today we will discuss 5 Dividend Stocks to consider buying in July 2023.

July Dividend Stock #1 - QUALCOMM ( QCOM )

Qualcomm is a carryover from last month, when I went through my 5 Top Dividend Stocks for June 2023 . During the month of June, shares of QCOM increased 5%.

The primary thesis why I like the stock is still roughly the same as it is the fact that it has yet to truly participate in the AI craze like many of its competitors.

Look at this chart showing the 12-month performance for many semiconductor stocks, including QCOM:

Nvidia is leading the charge up an astonishing 180%, followed by Broadcom (AVGO), which is up 78%, Advanced Micro Devices ( AMD ) up 49%, and Micron Technology ( MU ) up 14%. All those competitors are firmly in the green and then there is QCOM, not just lagging but negative over the past 12 months.

QCOM has a great portfolio to turn it around and I view this as an opportunity to add to my position while the stock treads water. The company has some of the strongest technology across various sectors, including:

• 5G with handheld devices
• Automotive with self-driving
• ARM processors in which they compete with Apple
• Generative AI

All of these areas above still have plenty of growth in them. Handheld devices are the area they depend on a lot right now and that is one reason the stock has lagged.

Qualcomm currently has a market cap of $133 billion and over the past 12 months, as we saw above, shares have fallen 6.8%. However, year-to-date, shares of QCOM have climbed 11%.

In terms of dividends, shares of QCOM currently yield a dividend of 2.7% and they are well covered by a low payout ratio below 30%. The company has been increasing the dividend for 20 consecutive years and they have a five year dividend growth rate of 5.2%.

Looking at valuation, analysts are looking for EPS of $9.57 over the next 12-months, which equates to a forward multiple of 12.2x. For comparable purposes, over the past five years, shares of QCOM have traded at an earnings multiple of 18.7x and over the past decade closer to 15.5x. This leaves plenty of upside for the stock.

Analysts rate the stock a Moderate Buy with a 12-mo PT of $135 indicating nearly 13% upside from current levels

July Dividend Stock #2 - Amgen Inc. ( AMGN )

Amgen is one of the larger biopharmaceutical companies and also one of the older ones as wellbeing founded back in 1980. The company currently has a market cap of $119 billion and over the past 12 months, shares of AMGN have fallen ~9%.

Investing in Amgen also gives your global exposure as their products are sold worldwide.

Q1 was a solid quarter in terms of volume growth for the company, which showed 14% YoY volume growth, with a big tailwind coming from the Asia Pacific region that saw nearly 50% volume growth. However, revenues fell 2% during the quarter largely due to lower selling prices and the negative impact from foreign currency.

The company has a good portfolio mix of new and older products, which should help sustain growth in the near-term. In addition, obesity drugs have been popular of late with AMGN creating their own, AMG 133, which is in development and has seen positive results thus far.

Amgen pays a dividend that yields 3.8%, which is near an all-time high in the company’s history, which speaks to the company being undervalued as dividend yields have an inverse relationship to stock price. The company has been growing the dividend for 11 consecutive years and they have a five year DGR of 10%, making it a dividend growth stock as well.

Shares of AMGN trade at a 2023 earnings multiple of 12.4x compared to their 5-year and 10-year average of 14.1x, indicating the stock appears undervalued.

Analysts rate the stock a Hold, but they also have a $253 12-month price target, indicating 13.5% upside from current levels.

July Dividend Stock #3 - Visa Inc. ( V )

Visa is one of the largest payment processing companies in the world and the world’s most widely accepted credit card with operations across more than 200 different currencies.

Visa and Mastercard ( MA ) are the two major players in the space followed then by American Express ( AXP ), which is not as widely accepted as the first two.

Visa currently has a market cap of $487 billion and over the past 12 months, shares have climbed 20%.

The primary business model for Visa is pretty simple, as customers utilize a Visa form of payment, the company then charges a small fee and with more and more consumers moving to electronic forms of payment, the sheer volume should only continue to grow long-term.

In 2022, Visa was handling more than 700 million transactions PER DAY. The company has allowed for not only fast, but secure and reliable payment processing which is the lure with Visa.

The company had a strong 2022 as revenues topped $29 billion and processing payments volume totaled more than 11.6 trillion. The company continued the momentum in Q1 2023 when they reported YoY revenue growth of 11%, which again beat analysts' expectations.

In addition to having solid growth metrics, the company also sports a very strong balance sheet with an AA- credit rating.

More often than not, investors buy Visa shares more for the growth rather than the dividend as the yield is quite low. However, some of that has to do with the strong performance of the stock because the company has been increasing the dividend quite aggressively.

Over the past 10 years, shares of Visa are up over 430% compared to the S&P 500 total return of 225%.

Speaking of the dividend, Visa yields a dividend of 0.8% but they have a 5-year DGR of 18%. Last year the company hiked the dividend by 20% and another sizable hike may be in store for 2023 as well. The board has increased the dividend for 14 consecutive years.

In terms of valuation, analysts are expecting 2023 EPS of $8.64, which for Visa their fiscal year ends in September. The current valuation equates to a P/E multiple of 27.4x and analysts expect EPS growth of another 14% the following year as well equating to a 2024 earnings multiple of only 24x. Over the past 5-years, Visa shares have traded at an average earnings multiple of 34x and over the past decade closer to 29.6x, suggesting the stock is looking quite cheap at current levels.

Analysts tend to agree as they currently rate the stock a STRONG BUY, with a 12-mo PT of $272.55 indicating nearly 20% upside from current levels.

July Dividend Stock #4 - Federal Realty Investment Trust ( FRT )

Federal Realty is a Real Estate Investment Trust that has a diversified portfolio of mixed use and retail type properties. The company has a current market cap of $8 billion and over the past 12 months, shares are largely flat.

FRT has a 102 property portfolio that is leased out to roughly 3,200 tenants. The company focuses on suburb cities that have dense populations and higher income levels, as well as higher barrier of entry locations.

37% of the company’s Property Operating Income or POI, is mixed use properties followed by 27% being super regional and 21% grocery anchored. In addition, 75% of all centers have some sort of grocery component to them.

Here is a quick look at the company’s top 10 tenants led by TJX Companies ( TJX ) which accounts for 2.7% of ABR, otherwise no other tenant accounts for more than 1.8%, and only 8 tenants above 1%, making for a very diversified tenant group.

The mixed use portfolio does have an office component, which could worry some investors, but the office buildings are class A properties meaning the highest of quality and location, which are still desired.

In terms of the dividend, FRT pays a high dividend yield of 4.8%, but with the high yield comes much slower growth at 1.6% annually over the past 5 years on average. However, the company is a dividend king as they have increased their dividend for 55 consecutive years.

Looking at valuation, analysts are calling for 2023 AFFO of $4.92 which equates to a P/AFFO of 19.1x which is well below the company’s 5-year average of 24.4x and 10-year average of 28x.

Analysts rate the stock a Moderate BUY, with a 12-month PT of $105.64 indicating 12% upside from current levels.

July Dividend Stock #5 - Crown Castle Inc. ( CCI )

Crown Castle is another REIT on our list for July, as the REIT sector has a lot of stocks trading at great valuations for long-term investors. Crown Castle competes directly with the likes of American Tower ( AMT ), who is another REIT trading at a great valuation. CCI currently trades at a market cap of $49 billion, but over the past 12-months, the stock has been hammered down more than 30%.

Crown Castle is a cell tower REIT that is seeing increased demand for connectivity. Everything these days is dependent on data. However, the stock has gotten crushed over the past year.

Here is a look at the company’s portfolio as they have more than 40,000 cell towers, roughly 120,000 small cells, and roughly 85,000 miles of Fiber.

Over the past decade, the company has invested heavily in capital expenditures and those investments are coming to fruition and expected to begin showing in the cash flow moving forward. That cash flow will continue to help fund a high yield dividend that management expects to grow at a 7-8% annual clip.

The company’s top tenants include the three largest carriers in Verizon ( VZ ), AT&T ( T ), and T-Mobile US ( TMUS ).

In terms of the dividend, CCI yields a high dividend of 5.5%, which is the highest on our list of stocks today. Over the past 5-years, the company has increased their dividend by an average of 8.3%. The dividend has been increasing for 8 consecutive years.

Analysts are expecting CCI to generate AFFO of $7.63 which equates to an AFFO multiple of 14.6x compared to their 5-year average of 22.8x and 10-year average of 20.9x.

Analysts rate the stock a Moderate BUY, with a 12-month PT of $149.30 indicating HUGE upside of 34% from current levels.

Investor Takeaway

The stock market has enjoyed a great run through the first half of the year, but is it sustainable? A lot will depend on the direction of the Federal Reserve, as they try and navigate a soft landing to keep the economy moving in the right direction and keep unemployment from rising too much.

As I touched on at the start, the rally has been very one-sided with the majority of the index underperforming thus far. Big tech seems likely to pullback in the near-term, but that leaves plenty of opportunities elsewhere, five of which we discussed today.

Disclosure: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.

For further details see:

5 Top Dividend Stocks For July 2023