Major stock market indexes are hovering around all-time highs, but there are plenty of industries that have had their fair share of struggles so far this year.
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Exploration and Production (E&Ps) e.g Devon Energy (NYSE: Bury) and What (NASDAQ: ABA) decreased significantly during the year.
Meanwhile, goal (NYSE: TGT) It erased all of its year-to-date gains (and some) by falling after announcing third-quarter earnings.
That’s why all three Dividend stocks Due to buy in December.
My Eminence (Devon Energy): With a 15.5% year-to-date decline at the time of this writing, it appears that many investors have balked at buying Devon Energy. However, doing so would be a mistake because the company continues to generate cash flow, which is used to pay off debt, buy back stock, and pay dividends to investors. At the same time, management’s asset acquisitions this year in the form of its purchases of Grayson Mill Energy (Bakken region) and its investments in its core assets in the Permian region resulted in productivity improvements resulting in an increase in full-year production guidance.
I have discussed Devon energy in more length elsewhere; Suffice it to note that based on an oil price of around $70 per barrel (equivalent to the price at the time of writing) and its current share price, management believes it will generate around 9% of its market value in free cash flow (FCF) next year. This will give management ample opportunity to pay off more debt or increase its variable profits. Moreover, even if it chose to use the cash flow to opportunistically repurchase shares, reducing the number of shares would increase existing shareholders’ claim on future cash flows.
As such, the market appears to be very pessimistic about Devon’s acquisition of assets in the Bakken (as it can generate cost synergies in concert with its existing assets in the Bakken) and strongly dismissive of the possibility of increasing its dividend in the future. If oil prices remain relatively high, investors can expect good returns from buying Devon Energy stock at this level.
Scott Levin (APA): After falling 36.8% year-to-date as of this writing, E&P APA shares are energizing bears far more than bulls. But that doesn’t mean there aren’t some compelling reasons to add these oil dividends to your buying list. Additionally, with APA stock trading at a discount to its historical valuation, investors have an excellent opportunity to acquire a 4.4% forward dividend on APA stock at an attractive price.
Much of the uncertainty surrounding APA shares this year stems from concerns about the company’s operations in the North Sea. In Q2 2024 financial results, management expected lower production from the North Sea as the company focused on maintenance activity. Later, in its third-quarter earnings presentation, management stated that it plans to shut down North Sea production by the end of 2029.
Those who decided to hit the sell button on APA shares because the company stopped production in the North Sea are short-sighted. For example, APA consolidated operations after acquiring Callon in April — an acquisition that led to a 40% increase in acreage in the Permian Basin. The acquisition strengthens the company’s position in the Permian region, and management expects the Callon merger to generate cost synergies of $225 million to $250 million.
For those looking for additional indicators that a company is in good shape, Standard & Poor’s It upgraded the APA to BBB-, leaving the company with investment-grade credit ratings from all three rating agencies. Turning to the company’s cash flow, investors will find that APA consistently generates strong cash flows from which it can generate its dividend, providing further evidence that the company’s dividend is safe.
With APA shares trading at 1.9 times operating cash flow — a discount to the five-year average cash flow multiple of 2.7 — now is a great time to jump into the oil patch with APA shares.
Daniel Volber (goal): Target stock fell 21.4% in one session after announcing third-quarter earnings on November 20. It has since recouped some of those losses, but the target remains red throughout the year compared to the big gains of the broader indices. At the time of this writing, Target stock is up just 8.6% from its 52-week low, and down 51% from its all-time high. The goal is not in his favor while his counterpart, Walmartat its highest levels ever. The big reason is poor goal expectations.
When Target reported second-quarter earnings in August, it revised its full-year guidance. However, in Target’s latest earnings report, the company lowered its full-year guidance to a range below its expectations since May. Wall Street hates uncertainty, and Target gives investors little reason to trust its forecasts. Despite this issue, there is reason to believe that the sell-off in Target stock has gone too far.
Target’s latest guidance calls for $8.30 to $8.90 in 2024 adjusted earnings per share (EPS). At the midpoint of $8.60, that would be a 3.8% decline from 2023’s adjusted EPS. But Target is still a very profitable company that pays a lot of money. Target pays a quarterly dividend of $1.12 per share at a run rate of $4.48 annually. So, even with lower profits, its dividend is still equivalent to twice its dividend. With a yield of 3.4%, Target stands out as a viable source of passive income for patient investors. The goal is a dividend with 53 consecutive years of dividend increases, so investors who buy shares today should see their dividend income grow over time.
Perhaps most importantly, Target is a very inexpensive company, with a price-to-earnings ratio of 13.8. People who are pessimistic about the company might say it deserves to be cheap if earnings continue to decline. But dig into management’s commentary for the quarter, and you’ll find that Target acknowledges some of its issues with pricing and inventory management and still believes its long-term strategy will succeed. The Target Circle loyalty program isn’t perfect, but it continues to grow. Target is expanding e-commerce, curbside pickup, and other omnichannel strategies.
Finally, the long-term investment thesis is sound, making Target a compelling dividend company to buy in December.
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Daniel Fulber He has no position in any of the stocks mentioned. My Eminence He has no position in any of the stocks mentioned. Scott Levin He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apa, S&P Global, Target, and Walmart. The Motley Fool has Disclosure policy.
3 Dividend Stocks Declining 8%, 16%, and 37% to Buy in December Originally published by The Motley Fool