Berkshire Hathaway, led by CEO Warren Buffett, recently hit a record valuation. Even more impressively, the company achieved this feat even with the S&P500 index down about 5% on 2022 trading and the Nasdaq Compound index down about 10.5% over the entire section.
As impressive as the investment conglomerate’s performance is, investors may be able to outperform in the future by backing individual dividend-paying stocks that have lost ground, instead of buying Berkshire at its upper. Read on to see why a panel of Motley Fool contributors identified Clorox (CLX 1.76% ), Starbucks (SBUX 0.38% )and ASML Company ( ASML -0.46% ) as the best dividend-paying stocks to buy right now.
Clean while helping the world clean
James Brumley (Clorox): Clorox was all the rage in the first half of 2020, when the world was doing everything it could to disinfect homes and businesses. But this love story was not made to last. This stock has slipped an incredible 40% from its mid-2020 peak and is still within reach of fresh 52-week lows. The post-pandemic downturn and rising costs are really taking their toll.
Sellers, however, may have exceeded their target.
While commodity inflation is making it tough on every level, it is making it tough for all consumer goods companies and their customers. But consumers still need bleach, charcoal, salad dressing and lip balm, regardless of price. Clorox is selling all of that and more, supporting what has evolved into a healthy 3.4% dividend yield.
And it’s not like higher costs or consumers balking at higher prices pose any real threat to this company’s payment. Dividend payouts last year were $4.55 per share, but Clorox earned $7.25 per share. This leaves plenty of wiggle room for even the most unexpected temporary challenges.
A strong dividend stock with growth opportunities
Daniel Foelber (Starbucks): The best buying opportunities in the stock market tend to be when the shares of a large company are selling for what appear to be short-term challenges. Starbucks is in that sweet spot right now.
The past few years have been tough for Starbucks, and the data shows it. Starbucks stock has produced just a 69% total return over the past five years, compared to 111% for the S&P 500 and 155% for the Nasdaq Composite.
Starbucks was hit hard by the U.S.-China trade war that reached a tipping point in 2018. China is Starbucks’ second largest market. It ended the first quarter of fiscal 2022 with more than 5,500 stores in China, which accounted for 16% of total stores.
Just 15 months later, Starbucks has been crushed by the COVID-19 pandemic. Starbucks depends on people coming to work, traveling, or just going out and doing things. And he is still recovering from the effects of the pandemic.
Fast forward to today, and Starbucks has been inflation sensitive. His solution was to pass these costs on to customers through price increases. It’s also about better paying employees and the threat of unionization.
Despite hitting an all-time high in July 2021, Starbucks has never really been able to plant its feet and gain momentum. And that makes it a tough business to invest in right now.
However, zooming out, Starbucks is one of the most powerful brands in the world and has a clear path to growing its business for decades to come. Starbucks has done a great job building out its rewards program, encouraging mobile payments and on-the-go transactions that help it increase sales. It generates more revenue per transaction as people shift to personalized drinks and include more food pairings with their drinks. Starbucks growth may come from opening more stores. But same-store comps also have plenty of traction, especially as Starbucks converts more of its stores to include drive-thru.
Add to that the fact that the stock is down 31% from its peak, has a price-earnings ratio of just 23, and has a dividend yield of 2.3%, and you have an investment opportunity. long-term convincing.
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Keith Noonan (ASML Holding): For investors looking for high yield, ASML’s current payout may not be satisfactory. The stock is currently yielding just 0.6%, but it could turn out to be a dividend-growth investor’s dream. ASML doubled its payout last year, and the company’s solid business and encouraging long-term growth potential point to a big upside for patient shareholders.
ASML manufactures semiconductor equipment that helps companies manufacture chips. The shortage of semiconductors over the past year has highlighted the fact that everything from mobile devices to cars and refrigerators now rely on chips to function, and these components will only become more and more centers from now on.
ASML’s revenue grew 33% year-over-year in 2021, and the company’s fourth-quarter bookings grew 66% year-over-year. Even better, the company is showing strong margins, with a gross margin of around 54% in the fourth quarter and a net margin of 36% over the period.
With the company valued at around 37 times this year’s expected earnings and 10 times this year’s expected sales, ASML’s valuation levels could also appear somewhat risky against the backdrop of recent market volatility and declining appetite for stocks that trade at multiples dependent on growth. On the other hand, stocks are trading down about 23% from their peak, and you’d be hard pressed to find tech companies with stronger industry positioning and stronger growth prospects. ASML’s proprietary technology gives it a strong moat, a feature prized by Buffett, and I expect stocks purchased at today’s prices to offer strong capital appreciation and a much larger yield over any line.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging 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 wealthier.