Investors have little to smile about after the first two months of the year left many stocks bruised and battered. Turning the calendar to March, folks may be hoping for a rebound in the stock market — or at the very least, for the bleeding to stop.
However, the truth is that no one knows what’s going to happen in the short term or how long the stock market correction will last. What we do know, however, is that buying and holding quality dividend stocks has historically been a great way to generate passive income from companies with the staying power to outlast tough times. Lockheed Martin (LMT), Chemours (CC), and nVent Electric (NVT) are three dividend stocks worth considering for March and beyond.
A dividend stock you can count on
Lockheed Martin: It’s not every day you see a company blast to a new all-time high and still be undervalued. But that’s exactly what’s happening with Lockheed Martin stock.
Share prices of the defense giant have gained 26% year to date, absolutely crushing indices like the S&P 500 and Nasdaq Composite, which are both down over 10% year to date.
Yet even after that gain, Lockheed Martin stock still has a price-to-earnings ratio (P/E) of less than 20 and a 16.1 price-to-free-cash-flow ratio — both of which are right around their three-year medians.
Part of the reason for Lockheed’s inexpensive valuation is its low growth. The vast majority of Lockheed sales come from the U.S. government. And if it’s not the U.S. government, it’s a U.S. ally that’s pre-approved by the Pentagon. This dependence adds stability to Lockheed’s earnings, but also makes it highly dependent on the defense budget — which has been growing in the low- to mid-single digits for years.
Lockheed is a great company for investors who are more focused on stability and income than growth. Lockheed’s backlog is around double its annual revenue.
Long-term contracts and orders that are made years in advance ensure Lockheed generates the free cash flow needed to support further dividend raises. With a dividend yield of 2.5%, Lockheed Martin is a great income stock that can bolster your portfolio amid heightened geopolitical risk.
Better passive income through chemistry
Chemours: Do you have some Teflon-coated pots and pans in your kitchen? Then you’re already familiar with Chemours, the company that manufactures the non-stick coating.
Spun off from DuPont in 2015, Chemours develops indispensable specialty chemicals used in numerous industries, including automotive, medical, energy, and consumer electronics, among others. Dividend investors are likely familiar with Chemours, as well. Currently, the stock offers a juicy forward dividend yield of 3.75%.
Circumspect investors need not worry that management is sacrificing the company’s financial health to satisfy investors with the dividend. Chemours had a conservative payout ratio of 43% in 2021, and its strong cash flow generation provides additional evidence that the dividend is well-covered. Over the past five years, Chemours has averaged annual free cash flow per share of $2.46 — a period during which its average annual dividend per share was $0.79.
The company is coming off a strong performance in 2021. Reporting sales of $6.3 billion, Chemours grew the top line by 28%, compared to 2020. The bottom of the income statement reflected considerable growth, as well: Chemours reported earnings per share (EPS) of $3.60, demonstrating considerable growth over the EPS of $1.20 that it reported in 2020.
Management also forecasts strong cash flow in the coming year, forecasting free cash flow over $500 million. For some context, Chemours reported free cash flow of $543 million in 2021.
For dividend-hungry investors, today is an opportune time to pick up shares of Chemours. The stock is changing hands at 5.5 times operating cash flow, representing a discount to its five-year average cash flow multiple of 7.5. If you prefer to look at the P/E ratio, shares look even more inexpensive. Valued at 7.4 times trailing earnings, shares of Chemours are trading well below their five-year average P/E of 58.9 and the S&P 500’s ratio of 24.9.
Undervalued and outperforming
nVent Electric: The electrical connection and protection product-manufacturer’s fourth-quarter earnings report was a little short of outstanding. However, organic sales rose 24% in the quarter, leading to adjusted earnings growth of 16%, compared to the same quarter of 2020. In addition, organic sales rose 18% on a full-year basis, with adjusted earnings up 31%.
Moreover, management expects organic sales growth of 6%-9% in 2022. It’s an impressive performance driven by a megatrend — electrification — that’s set for long-term growth.
nVent’s products include electrical enclosures, electrical and fastening solutions, and thermal-management products. They’re essential products necessary for customers to ensure safety and regulatory compliance. As such, nVent’s products are broadly used across several industries in the industrial sector. In addition, commercial and residential buildings are a key end market, as is infrastructure (including 5G), renewables, data centers, and electric-vehicle charging solutions.
If you’re going to have renewable energy and electric vehicles, you’ll need new transmission and distribution networks and storage. Meanwhile, the growth of so-called smart buildings and smart infrastructure implies electrical connectivity, as does factory automation.
Consequently, nVent has exciting long-term growth prospects, and the good news is it trades at a valuation discount to its peers and looks like a great value on an absolute basis.
Originally published on Fool.com
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.