2 stocks investors will love

Only two months later, and 2021 is shaping up to be quite a different year from 2020. The market best performing sectors have so far been energy, finance, communications and industry – compared to the tech and consumer discretionary sectors that have dominated 2020.

Dividends provide a level of calm and consistency for investors worried about the next stock market crash. A guaranteed income, no matter what the economy does or how far the COVID-19 vaccine is distributed, can be a great way to build up your wealth over time and get some peace of mind at night.

Cleaning Conglomerate Clorox (NYSE: CLX) and international leader in construction and energy caterpillar (NYSE: CAT) are two dividend-paying stocks that investors are sure to love. Here’s why.

Image source: Getty Images.

A household name that just had its best year

After a record-breaking 2020 (FY20) fiscal year, Clorox started FY21 with a strong start. The first quarter of FY21 (which corresponds to the third quarter of calendar year 2020) recorded the highest diluted earnings per share (EPS) in company history. Clorox followed this performance with an impressive FY21 in the second quarter, posting revenue growth of 27% and a 39% increase in diluted EPS. The company also updated its forecast of diluted EPS for FY21 to $ 8.05 to $ 8.25, which would be an increase of 9% to 12% from FY20.

This increase looks great on paper, but Clorox is about to run into some incredibly difficult lineup. And advice suggests it will be below the peak it saw in the first half of 2020. The pandemic largely benefited Clorox profits, however, the company should therefore not be punished simply because its 2021 numbers are unlikely to live up to last year’s results.

Clorox shares have fallen more than 18% in the past six months, compared to a 15% gain in the past six months. S&P 500. Instead of getting drawn into these skewed comparisons, investors may find it better to compare the 2021 to 2019 Clorox numbers. Clorox holds the first or second position in several of its key markets, many of which have grown significantly in 2020. The main thing to watch will be the company’s ability to retain some of the activities it has added from the pandemic and to look into permanent changes towards cleanliness.

In the meantime, Clorox will likely continue to increase its dividend and buy back shares. The company plans on returning $ 1 billion to shareholders, up from $ 780 million last year. It currently pays around $ 140 million per quarter in dividends, which means investors can expect around $ 440 million in share buybacks. Clorox is a Dividend Aristocrat, having increased its annual dividend for more than 40 consecutive years. Given the consistency and strength of Clorox’s performance, the company offers one of the most reliable dividends on the market today.

An industrial juggernaut that’s positioned for an escape

Unlike Clorox, Caterpillar did not perform well in 2020. In fact, it was far from it. Caterpillar’s financial results slumped to their lowest levels in three years as a global economic slowdown weighed on its cyclical lines of business.

CAT Revenue Graph (Yearly)

CAT Income (annual) given by YCharts

Despite this challenge, the company was able to generate $ 3.1 billion in free cash flow (FCF) for machinery, energy and transportation (ME&T). That was enough to cover his $ 2.2 billion dividend payment. It is worth mentioning that $ 1.7 billion of ME&T FCF was generated in the fourth quarter as Caterpillar’s business improved towards the end of the year.

Caterpillar originally forecasted FCF to be $ 4 billion to $ 8 billion for 2020. Although he missed his target, he expects to be able to meet that target in 2021 as the economy improves and his business continues to grow. returns to growth.

Much of its FCF will likely be returned to shareholders in the form of dividends and share buybacks. CEO Jim Umpleby reinforced the company’s commitment to increasing shareholder value, saying that Caterpillar “remains[s] focused on returning almost all of ME & T’s available cash to shareholders throughout cycles. During its first quarter 2020 conference call, Caterpillar announced that it was suspending its share repurchase program. However, the company has mentioned that it may reinstate share buybacks this year.

The heightened anticipation of a rebound in performance led to a caterpillar share price surge. Stocks are expected to remain volatile as Caterpillar has yet to prove whether this growth cycle is the real deal. However, there’s a good chance Caterpillar will increase its dividend for the 28th year in a row, and potentially buy back shares as well. Investors are likely to like the fact that the company has increased its dividend in good times as well as in bad times, making it one of the few cyclicals Dividend Aristocrats.

Reliability at its best

The stock market can be confusing when Clorox posts its best year ever and underperforms the market, while Caterpillar has one of its worst years in recent memory, but hands down beating the market. Yet this phenomenon perfectly illustrates how the market tends to be forward looking, effectively downplaying what it sees as short-term effects that skew profits up or down.

CLX chart

CLX given by YCharts

Clorox and Caterpillar are two stocks that investors will love, but for different reasons. Clorox’s record performance and reduced stock price make it excellent value now. The company is not used to publishing stunning results, and that is perfectly fine. Like a basic consumption stock, its income is protected from recessions, unlike the majority of the market. This resilience makes its dividend as reliable as possible.

On the other hand, Caterpillar’s performance is highly dependent on market cycles, but it has laid the groundwork for a great upward trend over several years. Its ability to increase its dividend in various business climates adds a level of consistency to its otherwise inconsistent performance, which can vary considerably from year to year. Clorox and Caterpillar report 2.4% and 1.9%, respectively, which is above the current market average of 1.45%.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

About Stephen Arrington

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