Finding Income in Quality Stocks, According to Berenberg
Berenberg suggests that investors should be discerning as they search for income strategies in a market where dividends are becoming harder to find. As the economy slows, dividend stocks can serve as a defensive investment option. Berenberg economists predict a decline in U.S. gross domestic product growth from 2.1% in 2023 to 1.2% in 2024. Global dividends are also expected to remain flat at just over $2 billion in 2023 compared to the previous year, according to S&P Global Market Intelligence.
The Importance of Income Strategies
Berenberg emphasizes the significance of income strategies in a post-COVID-19 world, particularly in an era of higher inflation. Investors are seeking real returns and aiming to outperform benchmarks. In light of this, Berenberg conducted a screening process to identify dividend-yielding stocks with strong fundamentals.
Criteria for Quality Stocks
Berenberg's screening criteria included a 12-month forward dividend yield of greater than 3%, a strong balance sheet with a net debt-to-earnings ratio less than 1.5, and surplus free cash flow greater than 2% based on the difference between 12-month forward free-cash-flow and dividend yields.
Selected Stocks
Among the 10 stocks that met Berenberg's criteria, the majority belonged to the energy sector. Exxon Mobil, the largest company on the list, has a 12-month forward dividend yield of 3.3% and a surplus free-cash-flow yield of 4%. Although the oil giant reported an earnings miss in the second quarter, CEO Darren Woods remains optimistic about the company's value and robust demand.
Pfizer, one of the two healthcare companies on the list, has a 4.7% 12-month forward dividend yield and a surplus free-cash-flow yield of 2.2%. The recent approval of Pfizer's updated Covid vaccine by the Food and Drug Administration adds to its positive outlook. The company is also developing a weight-loss drug to compete with medications from Novo Nordisk and Eli Lilly.
Ford Motor, the sole automobile name on the list, boasts a 12-month forward dividend yield of 5.8% and a 5% surplus free-cash-flow yield. Ford's strong second-quarter earnings performance and raised 2023 guidance contribute to its appeal. Additionally, the automaker's partnership with Tesla on charging initiatives for electric vehicles further enhances its prospects.
In conclusion, Berenberg's analysis highlights the importance of income strategies in the current market environment. By focusing on quality stocks with attractive dividend yields and strong fundamentals, investors can potentially find income opportunities. The selected stocks, including Exxon Mobil, Pfizer, and Ford Motor, demonstrate the potential for income generation in various sectors.
Conclusion: Implications for New Businesses
The insights provided by Berenberg can serve as a valuable guide for new businesses, particularly those in the investment sector. In an economy where dividends are harder to find, businesses need to be discerning and strategic in their income strategies.
Adapting to Market Conditions
As the economy slows, new businesses should consider how they can adapt their strategies to continue generating income. This might involve focusing on defensive investment options, such as dividend stocks, which can provide a steady income stream even in challenging economic conditions.
Emphasizing Income Strategies
In a post-COVID-19 world characterized by higher inflation, income strategies are more important than ever. New businesses should consider how they can implement income strategies to deliver real returns and beat benchmarks. This could involve identifying and investing in quality stocks with strong fundamentals and attractive dividend yields.
Learning from Successful Companies
The success of companies like Exxon Mobil, Pfizer, and Ford Motor demonstrates the potential for income generation in various sectors. New businesses can learn from these companies and consider how they can apply similar strategies in their own operations.
In conclusion, Berenberg's analysis offers valuable insights for new businesses. By understanding the importance of income strategies and learning from successful companies, new businesses can navigate the current market environment and position themselves for success.
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