In this article, we will take a look at the 5 best passive income stocks to buy now. To read our analysis of these stocks, you can go directly to the 10 Best Passive Income Stocks to Buy Now.
5. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 69
Dividend Yield as of June 3: 4.98%
Verizon Communications Inc. (NYSE:VZ) is a New York-based telecommunications conglomerate that is trading at an optimum P/E multiple and offers a healthy dividend yield to investors. The rolling out of 5G services will keep the company in a growth phase for the next few years due to new adopters.
However, in the short term, Verizon Communications Inc. (NYSE:VZ) is expected to come under pressure due to higher labor costs and energy-related costs related to network operations and transportation. This is a significant portion of the direct cost and can cause higher expenses going forward. The stock took a beating recently after Verizon Communications Inc. (NYSE:VZ) updated its forecast from up slightly to flat. The company’s annual dividend per share (DPS) stands at $2.56, translating into a payout ratio of 46.83%.
Verizon Communications Inc. (NYSE:VZ) stock is trading at a forward P/E ratio of less than nine, which provides an attractive opportunity to investors searching for a long-term dividend stock.
ClearBridge Investments mentioned Verizon Communications Inc. (NYSE:VZ) in its Q4 2021 investor letter. Here’s what the investment management firm said about the company:
“Over the last year, we have repositioned our portfolio to navigate the course we see ahead. We added to more defensive areas of the portfolio like telecom (Verizon). While the next month or two will likely prove choppy on account of the Omicron variant, we believe that Omicron, like Delta, represents a speed bump on the way to recovery rather than a true change in course. We see strong economic momentum continuing in 2022 and we expect interest rates to rise. After a decade of remarkably low rates, we would not be surprised if this change in direction is accompanied by some fits and starts in the markets. With our emphasis on pricing power, purposeful sector exposure, valuation discipline, and a strong dividend profile, we believe we are well-positioned for the year ahead.”
Overall, 69 hedge funds held a stake in Verizon Communications Inc. (NYSE:VZ) as of Q1 2022.
4. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
Dividend Yield as of June 3: 3.60%
Exxon Mobil Corporation (NYSE:XOM) is a Texas-based integrated energy company that is also a member of the Dividend Aristocrat list. The energy giant has been increasing its annual dividends every year for the last four decades. For Q2 2022, Exxon Mobil Corporation (NYSE:XOM) declared a dividend of $0.88 per share, payable on June 10.
Due to the rally in crude oil prices as the global economy started to recover following the end of lockdowns across the world, the stock price of Exxon Mobil Corporation (NYSE:XOM) has increased by more than 50% YTD. At a breakeven of $41 per barrel of WTI crude, Exxon Mobil Corporation (NYSE:XOM) can be expected to post a healthy bottom line at the end of the year. The company is working on reducing this to $27 per barrel by 2027. The diversified value chain across the Energy sector allows Exxon Mobil Corporation (NYSE:XOM) to maintain a healthy dividend yield.
Here’s what Goehring & Rozencwajg Associates said about Exxon Mobil Corporation (NYSE:XOM) in its Q3 2021 investor letter:
“After successfully replacing 25% of Exxon’s board of directors despite owning just 0.02% of the outstanding equity, Engine No. 1, the climate-focused activist hedge fund, met with Chevron’s management late last summer. In discussions that were later described as “cordial,” Chevron executives shared their plan to reduce carbon emissions. Subsequently, Chevron announced new plans to further reduce carbon output, along with their intention to appoint a new director with “environmental expertise.” Although it remains unclear exactly what Engine No. 1 is planning, rumors suggest the fund has contacted other investors, strongly suggesting they intend to launch a second campaign in the not-too-distant future.
What should Chevron expect?
It was recently reported by The Wall Street Journal that Exxon was considering abandoning two massive natural gas projects: the 75 trillion cubic foot (tcf ) Rovuma LNG project (capital cost $30 bn) and the 5 tcf Ca Voi Xanh offshore-Vietnam gas project (capital cost $10 bn). Exxon board members (most likely including the three supported by Engine No. 1) have publically expressed concerns about both projects.
According to internal reports, these projects are among the highest CO2 producers in Exxon’s pipeline; it is no surprise these projects have been called into question. However, we find the plight of both fields to be perplexing since production would almost certainly be used to displace coal in electricity generation, cutting CO2 emissions by nearly 50%. This fact seems to be lost on the new Exxon board members.”
At the end of Q1 2022, 83 hedge funds held a stake in Exxon Mobil Corporation (NYSE:XOM).
3. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 93
Dividend Yield as of June 3: 2.21%
Wells Fargo & Company (NYSE:WFC) is a California-based diversified financial services corporation that provides a wide variety of services ranging from consumer, corporate, and investment banking with an asset base of over $1.9 trillion. The bank has been operating with an asset cap of $1.95 trillion placed by the Federal Reserve following the sales practice scandal in 2018. Wells Fargo & Company (NYSE:WFC) announced a quarterly dividend of $0.25 per share on April 26, translating into a dividend yield of 2.21% as of June 3.
Wells Fargo & Company (NYSE:WFC) has been known for focusing on consumer-based lending through its commercial bank, but it now wants to increase its focus on corporate deal-making operations and trading. CEO Charles Scharf highlighted that nearly 50% of the company’s top line came from the corporate and investment banking segment and the services to middle-market companies. Wells Fargo & Company (NYSE:WFC) intends to focus more on its public underwriting business and investment banking services for its existing clients.
Davis Funds shared its stance on Wells Fargo & Company (NYSE:WFC) in its Q3 2021 investor letter.
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund includes Wells Fargo.”
Wells Fargo & Company (NYSE:WFC) was held by 93 hedge funds as of Q1 2022.
2. Altria Group, Inc. (NYSE:MO)
Number of Hedge Fund Holders: 47
Dividend Yield as of June 3: 6.65%
Altria Group, Inc. (NYSE:MO) is another stock on our list that offers a dividend yield of more than 6% as of June 3. The Henrico County, Virginia-based company, is involved in the manufacturing, distribution, and marketing of cigarettes, tobacco, and other related products.
Although the company is operating in an industry that is evolving rapidly as customers are switching away from traditional tobacco-filled cigarettes to products like JUUL for vaping and Cronos for cannabis, Altria Group, Inc. (NYSE:MO) also holds the exclusive for iQOS in the US. Altria Group, Inc. (NYSE:MO) pays an annual dividend of $3.6, translating into a dividend yield of 6.65% as of June 3.
In its Q2 2021 investor letter, Altria Group, Inc. (NYSE:MO) was discussed by Broyhill Asset Management. Here’s what the firm said:
“Altria (MO) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 20%. We shared our thoughts on these regulations during the quarter, which are available here.
MO Valuation. MO is up ~ 18% YTD (even accounting for the recent sell-off). We expect MO to generate close to $5 in annual FCF per share over the next few years, putting the stock at ~ 10x, which is less than half the market’s multiple today. Over the last decade, shares have traded at an average multiple of 15x and within a range of ~ 10x – 20x (+/-1 standard deviation). The stock yields 7.2% at the current price, close to a 6% premium to treasuries. Historically, shares have traded closer to a 3% premium to the 10Y, which would imply a ~ $75 share price.”
Of the 912 hedge funds in Insider Monkey’s database at the end of Q1 2022, 47 hedge funds held a stake in Altria Group, Inc. (NYSE:MO).
1. LyondellBasell Industries N.V. (NYSE:LYB)
Number of Hedge Fund Holders: 32
Dividend Yield as of June 3: 4.21%
LyondellBasell Industries N.V. (NYSE:LYB) is one of the largest plastics, chemicals, and refining companies in the world, with operations across 100 countries. The company designs and manufactures a wide variety of products ranging from food packaging film to pipe and fittings. LyondellBasell Industries N.V. (NYSE:LYB) considers itself a leader in the production of oxyfuels globally and an expert in polypropylene in Europe and North America.
On May 27, LyondellBasell Industries N.V. (NYSE:LYB) announced a special dividend of $5.20 per share and also increased its quarterly dividend per share from $1.13 to $1.19. The quarterly dividend reflects a 5% sequential increase, which will be paid out on June 13 to the shareholders of record as of June 6. The special dividend reflects that LyondellBasell Industries N.V. (NYSE:LYB) is focused on delivering a special return to shareholders as opposed to deleveraging the balance sheet.
In a note issued to investors on May 31, Hassan Ahmed at Alembic Global gave a Neutral rating on LyondellBasell Industries N.V. (NYSE:LYB) stock with a price target of $115. The target price provides a slim potential upside of 7.1%. The analyst has given the target price and rating as per his forecast of the US Chemicals sector during the second half of this year.
Here’s what Miller Howard Investments said about LyondellBasell Industries N.V. (NYSE:LYB) in its Q3 2021 investor letter:
“We initiated a position in LyondellBasell (LYB). Chemical markets are currently robust given the combination of 2020 plant shutdowns and strongly recovering demand. Despite the tailwinds, Lyondell trades at a low valuation and yields just under 5%.”
As of Q1 2022, LyondellBasell Industries N.V. (NYSE:LYB) was held by 32 hedge funds.
You can also take a peek at the 10 Finance Stocks to Buy Today According to George Soros’ Soros Fund Management and 10 Best Dividend Stocks for College Students.
