In this article, we discuss 12 best consumer cyclical dividend stocks to buy now. You can skip our detailed analysis of the consumer cyclical stocks and their outlook, and go directly to read 5 Best Consumer Cyclical Dividend Stocks To Buy Now.
Consumer cyclical stocks are companies that are highly sensitive to changes in the business cycle and consumer spending patterns. These companies typically produce goods and services that are considered non-essential or discretionary, such as automobiles, clothing, travel, and entertainment. During periods of economic growth and expansion, consumer cyclical stocks tend to perform well as consumers have more disposable income to spend on non-essential items. On the other hand, during recessions and economic downturns, consumers tend to cut back on discretionary spending, causing the performance of consumer cyclical stocks to suffer.
Last year’s inflation and consistent interest rate hikes caused consumer stocks to suffer heavily, with the S&P 500 consumer discretionary index falling by 35% through December 19. This was the sector’s worst performance on record. We also reported in our previous article that consumer stocks lost nearly $1.8 trillion in market value in the first half of 2022. However, with growing consumer spending, the index gained 9.65% this year, as of March 24, compared with a 3.42% gain in the S&P 500.
Consumer spending is one of the most critical components of the US economy, representing over two-thirds of the country’s GDP. The Covid pandemic of 2020 has had a significant impact on consumer spending patterns, with people spending more time at home due to restrictions on travel and public gatherings. The Commerce Department reported that consumer spending fell by 7.5% in March 2020 due to the shutdown of major industries and businesses. However, with the accessibility to online channels, purchasing across industries began to rebound. This January, consumer spending increased by 1.8%, which was its biggest gain since March 2021, as reported by Reuters. In addition to this, the personal consumption expenditures (PCE) price index gained 5.4% in the 12 months through January 2023, after soaring 5.3% in December.
The recent collapse of Silicon Valley Bank (SVB) sent a chill through the stock market while impacting a wide range of industries. Though the retail industry had less exposure to SVB in comparison with other sectors, the past few years saw growing public offerings of tech-focused retailers. It’s about time that this fallout would hamper investments in these new digital ventures. Forbes reported that following the collapse, Shopify temporarily stopped payments to online sellers with SVB accounts. Similarly, Stitch Fix lost a $40 million line of credit it had at the bank. To know more about the impact of the bank collapse on the retail industry, readers can have a look at our previous article titled 15 Best Cyclical Stocks to Buy Now.
In these market conditions, analysts recommend focusing on companies with strong free cash flows as they perform better than their peers. Moreover, these companies also pay out dividends regularly to shareholders, which helps them stay afloat during market downturns. Some companies with solid financials are The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG) which is evident through their decades-long dividend growth histories. In this article, we will discuss the best consumer cyclical dividend stocks to buy.
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Our Methodology:
For this list, we selected consumer cyclical dividend stocks from the entertainment, technology, retail, housing, materials, and automotive industries. These companies are strong dividend payers and have decent yields. We sorted these dividend stocks using Insider Monkey’s proprietary hedge fund sentiment data as of Q4 2022.
12. Leggett & Platt, Incorporated (NYSE:LEG)
Number of Hedge Fund Holders: 12
Leggett & Platt, Incorporated (NYSE:LEG) is a Missouri-based diversified manufacturing company that designs various products that belong to the home and automobile industries. On February 23, the company declared a quarterly dividend of $0.44 per share, which was in line with its previous dividend. The company maintains a 51-year streak of consistent dividend growth, which makes it one of the best dividend stocks on our list. As of March 27, the stock has a dividend yield of 5.70%.
Leggett & Platt, Incorporated (NYSE:LEG) holds a strong dividend growth track record like other dividend stocks such as The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG).
Leggett & Platt, Incorporated (NYSE:LEG) reported a solid cash position in FY22 as its operating cash flow for the year came in at $441 million, which showed a 63% growth from the same period last year.
At the end of Q4 2022, 12 hedge funds in Insider Monkey’s database owned stakes in Leggett & Platt, Incorporated (NYSE:LEG), compared with 14 in the previous quarter. The collective value of these stakes is over $25 million. Among these hedge funds, Citadel Investment Group was the company’s leading stakeholder in Q4.
11. Foot Locker, Inc. (NYSE:FL)
Number of Hedge Fund Holders: 25
Foot Locker, Inc. (NYSE:FL) is an American sportswear and footwear retailer which has operations in over 28 countries. Evercore ISI upgraded the stock to Outperform in March and also raised its price target on the stock to $60. The firm appreciated the company’s strong business model.
Foot Locker, Inc. (NYSE:FL), one of the best dividend stocks on our list, has paid dividends to shareholders every year since 1972, except for 2020 when it omitted its payouts due to the pandemic. The company currently pays a quarterly dividend of $0.40 per share and has a dividend yield of 4.18%, as of March 27.
As of the close of Q4 2022, 25 hedge funds tracked by Insider Monkey reported having stakes in Foot Locker, Inc. (NYSE:FL), up from 24 in the previous quarter. These stakes have a consolidated value of $312.2 million.
Miller Value Partners mentioned Foot Locker, Inc. (NYSE:FL) in its Q1 2022 investor letter. Here is what the firm has to say:
“Finally, Foot Locker (NYSE:FL) came under significant pressure during the quarter, with the stock down more than 50% from its highs and valuation not far from early 2020 lows. Nike continues to place a greater focus on their Direct-to-Consumer business, which will decrease their contribution to Foot Locker’s total sales, retreating to historical averages of 50% by 2023. While a near-term headwind to sales, management plans to offset the lost business by expanding distribution to other leading brands, rolling out larger neighborhood free-standing stores, and expanding two new growth banners (WSS & Atmos). WSS stores will provide an off-mall presence and focus on the rapidly growing and underserved Hispanic market. Atmos will provide Foot Locker with the ability to expand into Japan and Asia sneaker market with their digitally led business model. These new growth concepts have a combined potential to add more than $1B in sales by 2024. The company’s balance sheet remains very strong with $800M in cash and management is increasing returns to shareholders through raising the dividend by 40% and announcing a $1.2B share buyback (more than 40% of the float at current share prices). With the next 12 to 18 months as a transition period for the company, the share price weakness provides attractive reward/risk investment potential, near 3x Enterprise Value/Earnings Before Income, Taxes, Depreciation, and Amortization (EV/EBITDA) and close to a 30% normalized free cash flow yield.”
10. Gentex Corporation (NASDAQ:GNTX)
Number of Hedge Fund Holders: 26
Gentex Corporation (NASDAQ:GNTX) is a Michigan-based tech and electronics company that specializes in equipment for the global automotive industry. In the fourth quarter of 2022, the company reported revenue of $493.6 million, which showed a 17.6% growth from the same period last year. In 2022, it returned over $113 million to shareholders in dividends, which makes it one of the best dividend stocks on our list.
Gentex Corporation (NASDAQ:GNTX) currently pays a quarterly dividend of $0.12 per share and has a dividend yield of 1.79%, as of March 27.
As per Insider Monkey’s Q4 2022 database, 26 hedge funds reported having stakes in Gentex Corporation (NASDAQ:GNTX), worth nearly $511 million collectively. With over 8.8 million shares, Ariel Investments was the company’s leading stakeholder in Q4.
9. Nucor Corporation (NYSE:NUE)
Number of Hedge Fund Holders: 39
Nucor Corporation (NYSE:NUE) is an American company that specializes in the production of steel and other related products. The company is one of the best dividend stocks on our list as it has raised its payouts for 50 years consecutively. It currently pays a quarterly dividend of $0.51 per share for a dividend yield of 1.36%, as of March 27.
Credit Suisse sees strong earnings momentum for Nucor Corporation (NYSE:NUE) heading into Q2 due to pricing strength and strong end-market demand. In view of this, the firm raised its price target on the stock to $156 with an Outperform rating on the shares.
Of the 943 hedge funds in Insider Monkey’s database, 39 funds owned stakes in Nucor Corporation (NYSE:NUE) in Q4 2022. These stakes are collectively valued at over $551.3 million.
8. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 40
An American multinational automotive manufacturer, Ford Motor Company (NYSE:F) is next on our list of the best dividend stocks. In February, Barclays initiated its coverage on the stock with an Equal Weight rating and a $12 price target, appreciating the company’s strong performance over the years.
In the fourth quarter of 2022, Ford Motor Company (NYSE:F) posted revenue of $44 billion, which showed a 16.7% growth from the same period last year. The company pays a quarterly dividend of $0.15 per share and has a dividend yield of 5.19%, as of March 27.
At the end of December 2022, 40 hedge funds tracked by Insider Monkey reported having stakes in Ford Motor Company (NYSE:F), compared with 47 in the previous quarter. These stakes have a total value of roughly $1.4 billion. Ken Griffin and D. E. Shaw were some of the company’s leading stakeholders in Q4.
7. Albemarle Corporation (NYSE:ALB)
Number of Hedge Fund Holders: 46
Albemarle Corporation (NYSE:ALB) is a North Carolina-based chemical manufacturing company. On February 23, the company declared a 1.3% hike in its quarterly dividend to $0.40 per share. Through this increase, the company took its dividend growth streak to 29 years, which places it as one of the best dividend stocks on our list. The stock’s dividend yield came in at 0.73% on March 27.
Loop Capital lifted its price target on Albemarle Corporation (NYSE:ALB) to $403 in March with a Buy rating on the shares, presenting a positive outlook on the company’s business.
As of the close of Q4 2022, 46 hedge funds tracked by Insider Monkey were long Albemarle Corporation (NYSE:ALB). The stakes owned by these funds have a total value of over $587.8 million.
Carillon Tower Advisers mentioned Albemarle Corporation (NYSE:ALB) in its Q4 2022 investor letter. Here is what the firm has to say:
“Albemarle Corporation (NYSE:ALB) is a global specialty chemicals company with leading positions in lithium, bromine, and refining catalysts. The stock gave back some of its recent gains amid investor concerns about how the future price of lithium could be affected by a potential decelerating rate of growth in overall electric vehicle (EV) production and demand, primarily in China. Despite these potential near-term headwinds, longer-term the global lithium market remains tight, and Albemarle plays a critical role in the battery value chain and remains well-positioned for the overall continued global adoption of EVs.”
6. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 57
An American multinational fast food company, McDonald’s Corporation (NYSE:MCD) is one of the best dividend stocks with strong dividend growth streaks alongside The Coca-Cola Company (NYSE:KO), PepsiCo, Inc. (NASDAQ:PEP), and The Procter & Gamble Company (NYSE:PG). The company has raised its payouts for 46 years in a row and currently pays a quarterly dividend of $1.52 per share. The stock’s dividend yield on March 27 came in at 2.22%.
McDonald’s Corporation (NYSE:MCD) was a popular stock among elite funds in Q4 2022, with 57 hedge fund positions, up from 53 in the previous quarter, as tracked by Insider Monkey. These stakes have a total value of over $2.7 billion collectively.
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Disclosure. None. 12 Best Consumer Cyclical Dividend Stocks To Buy Now is originally published on Insider Monkey.