3 dividend stocks with strong cash flow for the downturn

Posted: 19 May 2022 3:57 pm
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Blackrock is suggesting clients seek companies with strong cash flows as the economy slows down. Here are three large-cap names that meet that criteria while generating dividends for investors.

The recent massive market selloff that has pushed more than half of the S&P 500 index members into a bear market is only highlighting the importance of finding stocks that can generate cash even in an economic downturn.

While BlackRock Investment Institute said “equity prices now reflect much of the worsening macro outlook,” it advises clients to go with US equities that generate strong cash flows and balance sheets.

We ran Charles Schwab’s stock screener, narrowing the search to large cap companies with the highest rating from the brokerage to find dividend-yielding companies that deliver strong cash flow. Here are the top 3:

HCA Healthcare trades at significant discount

You may have heard fund managers advising clients to seek shelter in health-care stocks. Afterall, health care is one of the last things consumers would give up even during a recession.

HCA Healthcare (HCA) traded at 5.84 times cash flow in its most recent fiscal year, the lowest of 25 companies rated A by Charles Schwab, signaling the company that runs 182 hospitals is undervalued.

The company, like many of its peers, has been hit by higher labor costs after many nurses quit their jobs for fear of bringing Covid home to family members who face a high risk of dying from the disease. Still, HCA Healthcare’s gross margin has been higher than its industry average for each of the past five years, according to Refinitiv.

Take a deep dive into HCA stock in our dedicated guide.

The stock, which has a dividend yield of about 1.1%, is trading at about 10 times its trailing 12-month earnings, a “significant discount” when compared with the health and services industry, according to Refinitiv’s report May 12.

Sixteen of 22 analysts who track HCA Healthcare have either a buy or a strong buy rating on the stock, with an average target price of $259.25, representing further upside from its current price of $201.61, according to Yahoo Finance.

Comcast’s increasing market share

Comcast (CMCSA) is a media company that generates a lot of cash and shares that with its investors, with a dividend yield of about 2.6%. It traded at 6.79 times its cash flow in its most recent fiscal year, according to Charles Schwab data. That supports the view that the stock is undervalued after plunging 23% in the past year.

“Comcast continues to generate strong cash flow and hold a solid balance sheet, enabling it to aggressively repurchase shares—a record $3.2 billion during the quarter, with that pace continuing into April,” Michael Hodel, an analyst at Morningstar said in a note April 29. “We believe this activity will add substantial shareholder value given the current stock price.”

The analyst estimates Comcast has increased broadband market share in the areas it serves to about 67% from about 59% five years earlier. The company’s “customer base in the typical market area is twice the size of its rivals’,” he said. That gap is “far larger in areas where the phone companies haven’t invested in recent years.”

The company’s integration of its cable, NBCU, and Sky businesses is adding to the optimistic outlook for the stock. “We think Comcast’s Q4 2021 and full year results showed a firming recovery path for NBCU’s advertising, TV/film content, and theme parks businesses — benefiting from pent-up demand,” said Keith Snyder, an equity analyst at CFRA, who has a buy recommendation on the stock.

Snyder and Hodel aren’t the only ones optimistic on Comcast’s prospects. Thirty of 31 analysts who track the stock have either a buy or strong buy recommendation on the stock, according to Yahoo Finance. Their average price target is $56.03, representing a huge upside from its current price of $42.19. It trades at 13.5 times earnings, cheaper than the S&P 500’s price-earnings ratio of almost 20.

See how Comcast has performed over five years in our dedicated guide.

MetLife benefits from labor market rebound

MetLife (MET) is trading at 7.3 times cash flow in the most recent fiscal year. The financial services company provides insurance. It shares its windfall with investors, with a dividend yield of 3.2%. The company’s price-earnings ratio is 8.2, cheaper than the S&P 500’s 8.2 times.

CFRA equity analyst Catherine Seifert, who has a buy rating on the stock, expects the recovery in the labor market to help boost the company’s group life sales. She sees the improving macro environment helping boost its sales of workplace-based products, while rising interest rates increases margins.

CFRA has a 12-month target price of $80 on the stock, higher than the $77.77 average estimate of 13 analysts on Yahoo Finance. That signals strong upside for the stock that’s trading at $62.71.

However, Seifert said declining equity markets, a deterioration in asset valuations and regulatory reforms resulting in higher capital standards are among the risks to CFRA’s price target. The stock is currently trading at 8.2 times earnings, a steep discount to the S&P 500.

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Luzi Ann Javier didn’t own any of the stocks mentioned in this article when this was written.

The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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