After bottoming in March, 30-year Treasury bond prices have started climbing again. Despite threats of interest rate hikes as early as 2023 and inflation, markets are supporting higher government debt prices. A number of Wall Street analysts are forecasting a rebound in 10-year yields to 1.8% by the end of the year, from the 1.285% seen on July 23.
Stock markets are not selling off at all, either. In a normal market, the rising debt prices would compete with stocks. This time, the dynamics between bonds and stocks are not repeating historical patterns.
The excess government debt purchases created too much liquidity. The Economist recently discussed the role of central banks in the economy and the risks ahead. Dividend income investors would benefit from studying the central bank’s actions. Conversely, readers are better off looking for a better buy price in dividend stocks.
There are seven dividend income stocks to buy as Treasury yields tumble.
Altria Group (MO)
Altria lost its way in the last few years when it acquired a 35% stake in Juul, an e-vape firm, and a 45% stake in Cronos Group (NASDAQ:CRON). A new management team, led by CEO Billy Gifford, will bring Altria back to its roots.
On July 9, Altria announced a deal to sell its Ste. Michelle Wine Estates Business to Sycamore Partners for $1.2 billion. This will help the company pay down its debt further. In the last quarter, Altria had $7.79 billion in debt, down from over $12 billion the year before. More importantly, CEO Gifford said it will allow the management team to “focus on the pursuit of our Vision to responsibly transition adult smokers to a non-combustible future.”
The wine business probably distracted Altria from its core competency of products that are inhaled. By moving on, it may increase shareholder value by guaranteeing its dividend and buying back shares. Conversely, the wine business offered shareholders a small diversification from the tobacco, vaping and cannabis markets. Fortunately, investors can diversify on their own by buying wine and beer companies separately.
MO stock offers a solid $3.44 annual dividend plus capital appreciation as its business keeps flourishing.
Consolidated Edison (ED)
When Fed Chairman J. Powell introduced the notion of a rate hike, Consolidated Edison stock plunged to as low as $72. ED stock failed to break out above $80 in May. ConEd declared a quarterly dividend of 77.5 cents in April, so with the dividend scheduled, income investors may collect the next payment.
On June 15, Con Edison said it would sell 10.1 million shares. It will invest the net proceeds in its regulated utility subsidiary. The company may also need the funds to invest in thousands of very large batteries. ConEd is housing those batteries in trailer-sized buildings on a small field in Ozone Park, Queens, NY. It has a deal with 174 Power Global to build a facility that stores green energy for 16,000 customers over several hours.
As ConEd invests in green energy initiatives, income investors may look at the stock as an Environmental, Social, and Corporate Governance play. On Wall Street, analysts have a $76.63 price target on ED stock (according to TipRanks).
Emerson Electric (EMR)
Emerson Electric is a consistently strong performer. In the first quarter, the company posted revenue growing by 6.7% Y/Y to $4.43 billion. It earned 97 cents a share. The full-year 2021 guidance is encouraging.
EMR forecast net sales to grow by 6% to 9% for 2021. Adjusted EPS of $3.90 is above the $3.77 consensus. It benefited from orders rising by 4%, offsetting a sales decline for Automation Solutions (as shown on slide 6 in the most recent presentation).
Global markets recovered in the quarter and will give Automation Solutions a lift in the coming quarters. The company said on its conference call that it expects this segment to accelerate in the second half of the year.
The average price target on EMR stock is $105.46.
Looking ahead, EVP and COO Ram Krishnan said the company will benefit from working down inventory in the earlier quarters. Unfortunately, higher steel and copper prices are a headwind but not enough to weaken EMR’s outlook. Furthermore, EMR’s global team has managed the chip and supply shortage well. It found alternatives to steel, plastic, and resin.
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