Who says investors can't have their cake and eat it too? A bunch of dividend-paying stocks are also beating the broad market of late, giving shareholders a nice combination of reliable income and appreciation. Here's a closer look at three such stocks currently outperforming the S&P 500. You may want to consider adding one or more of them to your portfolio at their current levels.
Darden Restaurants
You may be more familiar with Darden Restaurants(NYSE: DRI) than you realize. The company owns and operates more than 1,800 restaurants, with Olive Garden, LongHorn Steakhouse, and Cheddar's being its most recognizable brands.
The COVID-19 pandemic rattled the entire restaurant industry, along with this company. Now that the world is easing its way back to normal, inflation is biting into profitability. Darden just can't catch a break.
There's a light at the end of the tunnel, however, and it isn't an oncoming train. While still relatively high, inflation is slowing. Indeed, last month's annualized wholesale inflation rate was the lowest it's been in over a year, extending a shallow downtrend. Well-run restaurants at least have a shot at turning decent profits again.
Perhaps the biggest boost for Darden Restaurants right now, however, is coming from returning to pre-COVID norms. People continue to get out and do more than they did during the worst of the pandemic.
Data from the Census Bureau indicates U.S. consumers spent $83.7 billion in the country's bars and restaurants last month. That's not only up from last year's levels and 56% better than 2021's multi-year low, it's a record-breaker -- by a mile. It's also in spite of the lingering inflation that's apt to keep restaurants' prices higher even though costs are cooling off.
United Microelectronics
Taiwan Semiconductor may be Taiwan's (not to mention the world's) most prolific chip maker. It's not Taiwan's only semiconductor company, though. United Microelectronics(NYSE: UMC) is a respectable player in its own right, selling over $9 billion worth of computer chips last year thanks to year-over-year revenue growth of more than 30%.
That's only a fraction of the fragmented global semiconductor industry's yearly sales. But there's more than enough business to go around. The Semiconductor Industry Association forecasts that by 2030, the need for semiconductors will be more than 50% greater than in 2020. Putting this growth in dollar terms, McKinsey & Co. thinks the annual chip market will be worth more than $1 trillion by 2030, with computing, data storage, and wireless communications accounting for the bulk of this growth.
United Microelectronics should be able to win more than its fair share of market expansion. After all, it's already the world leader in mobile DDIC (display driver integrated circuits) tech and a key player in the autonomous vehicle arena. Its customers include Texas Instruments, AMD, Broadcom, and SanDisk, just to name a few. Clearly the company's doing something right.
Do know that this year won't be a great one. Analysts are calling for a 13% sales decline following last year's heroic top line growth, with earnings set to slide even more. It's only a temporary swoon, though, and shouldn't affect the company's dividend payout.
That's why investors have pushed United Microelectronics shares up to the tune of 66% since October's low; they're focusing on the bigger, long-term picture. Even with the big gain, however, there's still plenty of room for the stock to continue climbing.
Clorox
After a major pullback from the latter half of 2020 through the middle of last year, shares of The Clorox Company(NYSE: CLX) are finally on the mend. The stock is up nearly 30% from 2022's low, and knocking on the door of new 52-week highs.
You know about the company's bleach and disinfectants using the same brand name. These cleaning products prompted the stock's huge run-up in early 2020. The world was looking for ways to protect itself from COVID-19 infections, making Clorox wipes a hot commodity. Once the initial dust settled, of course, the market realized it had pushed the stock far too high, and corrected the mistake over the next couple of years.
It's the Clorox you probably don't know, however, that makes this overly aggressive correction a prospective buying opportunity.
This company is also the name behind consumer goods ranging from Glad trash bags to Fresh Step kitty litter to Kingsford charcoal to Liquid-Plumr, and more. Clorox is now moving forward in a deliberate way with all of these brands, devoting its full attention to the so-called IGNITE growth strategy unveiled in late 2019 -- just before COVID-19 took hold in early 2020 and disrupted the initiative.
It's a slow-moving process. Analysts expect modest earnings growth on minimal revenue growth this year, and they are calling for per-share earnings to improve from $4.27 this year to $5.38 next year. Most of that improvement will likely stem from cost savings, though. Sales are only projected to grow about 3%, and it's still an expensive stock. It is progress, however, and the stock's budding rally says more and more investors are believing in the long-term potential of the IGNITE plan.
Perhaps more important to current and prospective shareholders is the fact that with next fiscal year's projected profits of $5.38 per share, the dividend is more than funded by earnings again. The Clorox Company's 20-year streak of dividend increases is still intact, with another one likely in the cards this year.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
