With continuing market volatility due to investor concerns over the rapid spread of the COVID-19 Delta variant and skepticism surrounding the economic recovery, we think it could be prudent to invest in fundamentally strong dividend stocks Novartis AG (NVS) and PetroChina (PTR) to hedge against a potential stock market correction in the coming months. So, let’s review these names.
The stock market is experiencing substantial volatility due to concerns over high inflation and the worldwide spread of the COVID-19 Delta variant. Because the stock market is expected to remain unpredictable for the foreseeable future, we think it could be wise to bet on dividend-paying stocks now to ensure a consistent source of income. Investing in dividend-paying stocks is usually a safer strategy to beat market volatility and reduce portfolio losses.
Furthermore, according to Democratic Senator Joe Machin, if the Fed continues to maintain its current interest rate policy, it could fuel higher inflation and financial instability.
So, to hedge one’s portfolio against a potential stock market downturn in the coming months, we think dividend-paying stocks Novartis AG (NVS) and PetroChina Company Limited (PTR) could be the best bets now.
Novartis AG (NVS)
NVS in Basel, Switzerland, is a global healthcare company that conducts research, and develops, produces, and markets healthcare products. Innovative Medicines and Sandoz are the company’s two divisions of the firm. In addition, NVS has a license and collaboration agreement with Alnylam Pharmaceuticals to develop, manufacture, and commercialize inclisiran; a collaboration agreement with CureVac to manufacture COVID-19 vaccine candidate CVnCoV; a collaboration with Artios Pharma Limited to create next-generation DDR cancer therapies; and a clinical collaboration with Kura Oncology, Inc. to evaluate the combination of Tipifarnib and chemotherapy.
This month, NVS announced that the U.S. Food and Drug Administration (FDA) has ruled that OAV-101 intrathecal (IT) clinical studies for patients with spinal muscular atrophy (SMA) may proceed, eliminating a partial clinical-trial suspension imposed in October 2019.
NVS’ net sales increased 14.2% year-over-year to $12.96 billion in the second quarter, ended February 27, 2021. Its operating income grew 47.9% from its year-ago value to $3.48 billion, while its net income surged 55.1% year-over-year to $2.90 billion over this period. The company’s cash flow from operating activities increased 4.3% year-over-year to $4.13 billion.
The company's EPS is expected to grow 5.9% year-over-year to $6.12 in the current year. Analysts expect NVS' revenue to increase 6.5% year-over-year to $51.81 billion in its fiscal year 2021. NVS' stock has gained 9.5% over the past year and 7.8% over the past nine months.
NVS’ $3.20 annual dividend yields 3.5% on its current stock price. On January 26, the company approved a $3.20 quarterly dividend, payable on March 15. It has a 3.5% four-year average dividend yield.
NVS's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
NVS is also rated an A for Stability, and a B for Growth and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #2 of 219 stocks.
To see additional POWR Ratings for Momentum, Value, and Sentiment for NVS, click here.
PetroChina Company Limited (PTR)
Beijing-based PTR and its subsidiaries deliver a variety of petroleum-related goods, services, and operations in Mainland China and around the world. Its business segments include Exploration and Production; Refining and Chemicals; Marketing; Natural Gas, and Pipeline.
During its fiscal year ended December 31, 2021, PTR’s net sales were ¥1933.84 billion ($298.22 billion). Its operating income totaled ¥75.94 billion ($11.71 billion). The company reported ¥19.01 billion ($2.93 billion) in net income, while its EPS came in at ¥0.10 ($0.02) over this period.
The company’s EPS is expected to grow 245.5% year-over-year to $5.01 in its fiscal year 2021. Analysts expect PTR’s revenue to increase 34.5% year-over-year to $377.09 billion in the current year. The stock has gained 15.7% over the past year and 35.1% year-to-date.
PTR declared a $1.36 quarterly dividend, payable on August 9. While the four-year average dividend yield for PTR is 4.5%, the current dividend translates to a 6.3% yield.
It is no surprise that PTR has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Value and Growth, and a B for Stability. In the B-rated Foreign Oil & Gas industry, it is ranked #9 of 50 stocks.
In addition to the POWR Ratings grades we have just highlighted, one can see the PTR ratings for Quality, Momentum, and Sentiment here.
NVS shares were trading at $91.85 per share on Monday morning, up $0.53 (+0.58%). Year-to-date, NVS has declined -0.37%, versus a 19.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.