VF, Best Buy, Walgreen and 3M join the 4% Yielders Club in the S&P 500

Text size

Best Buy shares are not only returning more than 4%, but the company has repurchased 10% of its shares over the past year.

Scott Olson/Getty Images

Certain stocks regularly feature on the S&P 500 High Yield List, including AT&T, Verizon Communications and

Altria
.

But this year’s market sell-off added seven new names to the group of about three dozen S&P 500 stocks that are now yielding 4% or more.

They are

Gilead Sciences

(symbol: GILD),

best buy

(ABY),

Walgreen

s Boots Alliance (WBA),

Franklin Resources

(WELL),

V.F. Corp.
.

(VFC), 3M (MM) and

Financial truist

(TFC).

All seven generate enough cash to comfortably cover their 4% dividends, with five of the seven having payout ratios (current annual payouts divided by projected 2022 earnings) below 50%. They also feature reasonable valuations, with four of the stocks trading at less than 10 times expected 2023 earnings.

None of the seven is a Wall Street favorite. Franklin Resources does not have a single buy rating among analysts tracked by Bloomberg. 3M and Walgreen have only one buy each in their analyst coverage.

Company / Symbol Recent Price Dividend yield 2022E dividend payout ratio 2022E P/E
Gilead Sciences / GILD $64.40 4.5% 41% 9.8
Walgreens Boots Alliance / WBA 43.47 4.4 38 8.5
Franklin/BEN Resources 26.44 4.3 31 7.4
Best buy / BBY 83.76 4.3 45 9.7
VF Corp. / VFC 49.83 4.1 60 15.0
3M / MMM 148.72 4.0 55 13.7
Truist Financial / TFC 47.33 4.0 42 10.6

Electronic estimate

Sources: S&P Dow indices; set of facts

Best Buy is a category leader whose stock is down about 15% this year to $84, due to weaker demand for consumer electronics from a robust 2021.

The company recently cut its financial forecast for its current fiscal year, ending in January 2023, by about 30 cents, to a midpoint of $8.70 per share. The shares are trading at less than 10 times earnings. Best Buy not only pays a dividend of over 4%, but has repurchased 10% of its stock over the past year.

Walgreen, at around $43, trades for just eight times earnings and is valued at only 40% of sales. The company is seeing profit growth in the low numbers in its current fiscal year, ending in August, boosted by Covid vaccines and testing. Analysts are forecasting slightly lower earnings next year, but that seems to be reflected in Walgreen’s depressed price.

Truist Financial, formed from the 2019 merger of BB&T and SunTrust Banks, is one of the leading banks in the Southeast. Its shares, at around $49, are down 16% this year and are trading at 10 times expected 2022 earnings. They are yielding 4%. Truist has trailed rivals in loan growth and has less cash to deploy at higher rates.

3M, a diversified industrial company, has been depressed by investor concerns over legal liability issues, including issues related to the chemical PFAS. The shares, at around $149, trade less than 14 times forecast adjusted earnings for 2022 of around $11. The stock yields 4%.

JP Morgan analyst Steve Tusa is neutral on the stock, writing after 3M’s first-quarter earnings report that while the stock is cheap, environmental liabilities have become a bigger issue this year .

Traditional asset managers are falling out of favor with investors due to the shift towards index and alternative assets. Franklin Resources is among the least popular managers, due to continued net outflows. Franklin has had some success building its platform of alternatives.

Its shares are trading around $27, earning 4.3% and earning just seven times earnings for the fiscal year ending in September.

With brands such as Vans, Timberland and North Face, VF is one of the largest clothing manufacturers. Its shares, at around $50, are down 31% this year and now yield 4%. The company recently said it expects earnings per share to grow about 5% to $3.35 in its fiscal year ending April 2023.

Analysts have raised concerns about trends in the Vans shoe industry and an $845 million payment to the Internal Revenue Service related to a tax dispute that VF anticipates for this year.

Gilead is a leader in HIV drugs and its antiviral Veklury (formerly Remdesivir) has been widely prescribed for Covid.

Its shares, at around $64, are valued at around 10 times expected 2022 earnings and yield 4.5%. Adjusted earnings are expected to fall about 10% to $6.50 a share this year due to lower Veklury sales. The company’s low valuation reflects expectations of slow revenue growth in the coming years.

Write to Andrew Bary at andrew.bary@barrons.com

About Catherine Wilson

Check Also

First Trust Tactical High Yield ETF (NASDAQ:HYLS) Sees Sharp Drop in Short-Term Interest

The First Trust Tactical High Yield ETF (NASDAQ:HYLS – Get Rating) saw a sharp decline …