Down 24% to 51%, These 3 Top Dividend Stocks Are Coiled Springs for When Economic Growth Returns

Lower consumer spending, high inflation, rising interest rates, geopolitical tensions—the list of economic headwinds plaguing the stock market is endless. Being bearish is in fashion and the price action of the broad market indices certainly reflects this.

While investors shouldn’t rule out the possibility of a prolonged recession, it’s also important to remember that economic cycles are simply normal when it comes to long-term investing. Economic growth seems unlikely in the short term, but one day the cycle will shift again.

For patiently optimistic investors looking for bargains, FedEx (FDX -3.37%), Carrier Global (KARR -0.25%)and Air Products and Chemicals (APD -0.61%) stand out as three dividend stocks worth considering now that companies are poised to take advantage when the economic tide turns.

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A worthy turnaround game

Daniel Folber (FedEx): FedEx shocked the investing world this month when it preannounced worse-than-expected diluted earnings per share for the first quarter of fiscal 2023 and scrapped its full-year guidance. When it presented quarterly results at the end of June, the parcel delivery giant had forecast a record year in fiscal 2023.

This sharp move from upbeat optimism to red flags signals that consumer and business demand could be slowing, particularly for FedEx’s premium services through FedEx Express. Longtime supporters of the company will know that it tends to be viewed as an economic pioneer, as its performance ebbs and flows with the broader economy. And while that’s a plus, FedEx has been relatively more affected by macroeconomic events than its peer in recent years United Parcel Service — as well as the broader transportation industry.

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Poor management at FedEx and an inability to accurately predict near-term performance have left investors in the dark. Unsurprisingly, the stock has sold out, down nearly 50% from its all-time high, and is lower today than it was five years ago.

But investing isn’t about where a company has been. It’s about a company’s prospects and the stock’s valuation and whether it’s positioned to grow its earnings over time. While it’s true that FedEx’s performance could deteriorate before it improves due to a deteriorating macroeconomic climate and that it could take time for new CEO Raj Subramaniam to take root, the company remains an industry leader. And the economy will turn around. Now looks like a good time to buy FedEx shares given that the stock is relatively cheap even as earnings fall. As a bonus, FedEx’s dividend is 3% at the current stock price, making it an attractive source of passive income.

Carrier remains poised for growth

Lee Samaha (Carrier): Carrier’s shares are down about 30% so far in 2022, but you wouldn’t guess it from the company’s prospects. Management raised its guidance for full-year earnings per share (EPS) when it announced its second-quarter results in late July. After starting the year by forecasting organic sales growth in the high single-digit percentage range and adjusted EPS of $2.20 to $2.30, management raised its earnings-per-share guidance to a range of 2.25 to $2.35.

The heating, ventilation, air conditioning, refrigeration, fire and security, and building technology company’s leadership believes such growth rates are sustainable. During its February Investor Day presentation, management outlined expectations for medium-term growth of 6% to 8% based on long-term trends identified by Carrier. Examples include the trend toward healthy, clean buildings in response to the pandemic. In addition, there is a need for commercial building owners to retrofit equipment to meet more stringent emissions targets and standards. Meanwhile, the trend toward smart, digitized buildings continues, and investing in them will significantly improve building efficiency. Additionally, demand for HVACR products is growing as the number of middle-class people increases in countries around the world.

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Another key growth driver will be the European Union’s “Fit for 55” package – a series of policy proposals designed to help the EU meet its target of reducing carbon emissions by 55% by 2030. Carrier’s energy-efficient HVACR solutions could help with that. There’s also the REPowerEU plan, which aims to reduce the EU’s dependence on Russian fossil fuels. Among other things, it intends to double the installation rate of heat pumps to replace gas boiler systems.

It all adds up to a compelling growth story for Carrier to grow as spend increases, with international customers offsetting a potential decline in U.S. residential HVAC spend.

This Dividend Aristocrat remains poised to thrive as the economy bounces higher

Scott Levine (Aerial Products and Chemicals): If you don’t get your Halloween decorations out of storage ahead of time, you can put the crystal ball away. Predicting when the economy will return to growth mode is an impossible task. But that’s okay. Rather than trying to predict when the economy will pick up again, investors would be better off snagging high-quality dividend stocks that they can cash out while they wait — Air Products and Chemicals, for example. Air Products offers investors a 2.7% expected dividend yield at the current share price and is a Dividend Aristocrat with a long history of rewarding shareholders. It’s also well positioned to benefit if the economy returns to growth.

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As a leader in the manufacture of industrial gases, Air Products plays a critical role in ensuring companies in a variety of industries – from food and beverage to metals production to biotechnology – have the basic materials they need to run their businesses require. Because its customers come from such a diverse range of industries, Air Products mitigates the risk associated with an acute downturn in one or more industries.

Still, cautious investors might question the company’s ability to weather the headwinds associated with an economic downturn while maintaining its payouts to shareholders. But this isn’t the company’s first rodeo. For four decades — a period when the economy has seen its fair share of downturns — Air Products has consistently increased its dividend every year.

Investors often have to pay a premium for high-quality dividend stocks. Nowadays, however, shares in Air Products can be snagged cheaply. The stock trades at 21 times forward earnings, a nice discount to its five-year average multiple of 24.5.

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