The Federal Reserve’s dovish monetary policy stance has played a huge role in the U.S.’ fast-paced economic recovery. Despite rising inflation rates the Fed plans to stick with its “cheap money” policy even as markets exhibit signs of a “taper tantrum”. San Francisco Federal Reserve President Mary Daly recently said in a CNBC interview that she is bullish regarding the future, but that substantial progress has to be made before the central bank can tighten its monetary policy. Indeed, April's job growth data was disappointing.
As a result, Treasury yields dipped slightly on May 26. The 10-year benchmark Treasury yield stood at 1.56%. The Fed’s plan to hold interest rates at near zero levels in the short term, coupled with increasing market volatility and declining Treasury yields, has been motivating investors to focus on high-yield dividend paying stocks.
Northrop Grumman Corporation (NOC), Sysco Corporation (SYY) and The Mosaic Company (MOS) hiked their quarterly dividend payouts recently based on strong performance and stable cash flows. We think their strong fundamentals and growth potential should allow them to sustain their payouts over the long term, making them attractive investment bets now.
Northrop Grumman Corporation (NOC)
NOC is a global aerospace and defense company that operates through four segments—Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. The company is known for its diversified weapons and aircraft systems used by the country’s defense sector. It also provides various intelligence systems and technology solutions for life cycle service and software support for defense equipment. Shares of NOC have gained 21.4% year-to-date, and 22.6% over the past three months.
NOC’s $6.28 annual dividend yields 1.7% on the current price. On May 19, the company approved an 8% rise in quarterly dividends to $1.57, payable on June 16. NOC’s dividend payouts have increased at a 12.3% CAGR over the past three years. Also, the company has increased its dividends consistently over the past 16 years.
NOC’s revenues increased 6% year-over-year to $9.16 billion in the fiscal first quarter ended March 31. This can be attributed to a 29% rise in the revenues from its Space Systems segment, and a 10% rise in revenues from its Mission Systems segment. Its operating income came in at $2.82 billion, up 202% from the same period last year. Its EBT and net income improved 186% and 153%, respectively, year-over-year to $3.02 billion and $2.20 billion over this period. Its EPS stood at $13.43, indicating a 161% improvement from its year-ago value.
The U.S. has intervened in the ongoing Israel-Palestine conflict due to its strategic alliance with Israel. On May 17, President Biden approved a potential precision guided arms sale worth $735 million to Israel. Furthermore, the increasing threat from China as it positions itself to assert control over Taiwan, which is a strategic trading partner of the U.S., has incentivized Taiwan to scale up its defense equipment and operations amid the external threat. The rising demand for state-of-the-art defense equipment bodes well for NOC because it is a leading manufacturer of such equipment.
A $37.55 billion consensus revenue estimate for its fiscal year 2022 indicates a 4.8% rise year-over-year. Analysts expect NOC’s EPS to rise 4% in the current year and 4.1% next year. The company has an impressive earnings surprise history, and it beat Street EPS estimates in each of the trailing four quarters.
NOC has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
NOC has a B grade for Value, Stability and Quality. Of the 66 stocks in the Air/Defense Services industry, NOC is ranked #7.
In addition to the grades we’ve highlighted, click here to view NOC Ratings for Momentum, Sentiment and Growth.
Sysco Corporation (SYY)
SYY distributes food items and related products to the food service and food-away-from-home industries. It operates internationally through three segments, namely, Broadline, SYGMA and Other. The company has an ISS Governance Quality Score of 4, indicating relatively low governance risk.
During the 2021 Investor Day presentation hosted on May 20, SYY announced its 52nd consecutive annual dividend increase plan. The company announced a 4.4% quarterly dividend increase to $0.47, payable on July 23. SYY’s annual $1.88 dividend yields 2.31% at the current share price. Its dividend has increased at a 9.3% CAGR over the past three years.
SYY’s operating income increased 291.4% year-over-year to $235.92 million in the fiscal third quarter, ended March 27. Its EBT came in at $102.85 million, representing a substantial improvement from its negative year-ago value. Its net income stood at $88.93 million, up 2,797.2% from the same period last year. And its EPS improved 1,800% from the prior year quarter to $0.17.
Rising food and commodity prices drove SYY’s financials significantly in the most recent quarter. The company plans to utilize its improving operating margins to reduce its debt burden and to repurchase shares to strengthen its balance sheet. As part of its robust growth plan, the company plans to reduce its debt by $1.50 billion during its fiscal year 2022, and to reduce its cost by $750 million by its fiscal year 2024. Furthermore, SYY has announced a $5 billion share repurchase plan. These measures should allow SYY to distribute dividends periodically over the long term.
The Street expects SYY’s revenues to rise 59.1% year-over-year to $14.11 billion in the fiscal fourth quarter, ending June 2021. Its EPS for the current quarter is expected to be $0.60, indicating a 306.9% improvement from the same period last year. SYY surpassed consensus EPS estimates in three out of trailing four quarters.
SYY has gained 57.5% over the past year, and 9.8% year-to-date. It has an overall A rating, which translates to Strong Buy in our proprietary rating system. SYY has a B grade for Quality, Value and Growth. It is ranked #5 of 81 stocks in the B-rated Food Makers industry.
Beyond what we have stated above, we have also rated SYY for Sentiment, Stability and Momentum. Get all SYY Ratings here.
The Mosaic Company (MOS)
MOS manufacturers and distributes crop fertilizers in 40 countries worldwide. Its main products are concentrated phosphate and potash crop nutrients, with production and storage facilities in the United States, Canada, Brazil and Paraguay. The company operates through three segments—Phosphates, Potash and Mosaic Fertilizantes.
Rising food prices have incentivized farmers to ramp up their production to improve their profits. As a single source provider of concentrated phosphate and potash fertilizers and feed ingredients for the global agricultural industry, MOS is expected to benefit from the higher global demand for fertilizers. Furthermore, the United States International Trade Commission has announced import duty on phosphate imports in the United States from Russia and Morocco. These import duties are expected to make the domestic fertilizer industry more competitive, thereby benefiting MOS.
On May 21, MOS increased its dividend payout by 50% to 7.50 cents per share, payable on June 17. The company’s 30 cents annual dividend yields 0.86% at the prevailing share price.
MOS’ net sales improved 27.8% year-over-year to $2.30 billion in its fiscal first quarter, ended March 31. Its gross margin increased 950.5% from the same period last year to $434.90 million, while its operating income rose 573.1% from the prior year quarter to $313.20 million. Its net income was $156.70 million, representing a substantial improvement from its negative year-ago value. Its EPS improved 175.9% from the same period last year to $0.41.
MOS’ revenue is expected to improve 39.4% year-over-year to $2.85 billion in the current quarter (ending June 2021). A $0.96 consensus EPS estimate for its fiscal second quarter indicates a 772.7% rise from the prior year quarter. MOS surpassed the Street’s EPS estimates in each of the trailing four quarters.
MOS has gained 200.8% over the past year, and 51.1% year-to-date. It has an overall B rating, equating to Buy in our POWR Ratings system. It has an A grade for Growth, and B for Value. Of the 31 stocks in the Agriculture industry, MOS is ranked #7.
We have also rated MOS for Sentiment, Quality, Stability and Momentum. Click here to view all MOS ratings.
NOC shares were trading at $366.45 per share on Wednesday afternoon, down $3.54 (-0.96%). Year-to-date, NOC has gained 20.84%, versus a 12.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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