3 Dividend Stocks You Can Count on for Passive Income The Fed's successive rate hikes have hit household wealth. Moreover, rate hikes against a slowing economic backdrop have increased the risk of recession. Amid this, we believe stable dividend stocks...

The Fed's successive rate hikes have hit household wealth. Moreover, rate hikes against a slowing economic backdrop have increased the risk of recession. Amid this, we believe stable dividend stocks Pfizer (PFE), Merck & Co. (MRK), and Valero Energy (VLO) might be ideal investments. Read more….

The Fed has pushed its federal funds rate to 3%-3.25%. After it was criticized for being slow to recognize inflation, the central bank embarked on its most aggressive tightening since it started using the overnight funds rate as its principal policy tool in 1990.

At the end of the second quarter, Americans' holdings of corporate equities and mutual fund shares fell to $33 trillion, down from $42 trillion at the start of the year, thereby wiping out more than $9 trillion in wealth from U.S. households.

Stock market volatility is likely to persist for some time. Moreover, the Fed's benchmark lending rate is expected to reach 4.6% by the end of this year. Rising rates in the face of a slowing economy have raised recessionary concerns.

Given the backdrop, stable dividend stocks provide a cushion to investors in times of uncertainty. Hence, fundamentally strong dividend-paying stocks Pfizer Inc. (PFE), Merck & Co., Inc. (MRK), and Valero Energy Corporation (VLO) might be ideal investments to garner passive income.

Pfizer Inc. (PFE)

PFE discovers, develops, manufactures, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas. The company serves wholesalers, retailers, hospitals, clinics, government agencies, and disease control and prevention centers.

On October 5, PFE announced that it had completed the acquisition of Global Blood Therapeutics, Inc. (GBT), a biopharmaceutical company that deals with sickle cell disease (SCD).

Moreover, on October 3, PFE announced the completion of its acquisition of Biohaven Pharmaceutical Holding Company Ltd., which makes NURTEC® ODT (rimegepant), an innovative migraine therapy approved for both acute treatment and prevention of episodic migraine in adults. These acquisitions should benefit the company.

On September 22, PFE declared a quarterly dividend of $0.40 per share on its common stock, payable to shareholders on December 5. Its annual dividend of $1.60 yields 3.60% on current prices. The company's dividend payouts have increased at a 5.7% CAGR over the past three years and a 5.9% CAGR over the past five years. The company has a record of 11 years of consecutive dividend growth.

In the second quarter that ended July 3, PFE's revenue increased 46.8% year-over-year to $27.74 billion. Its income from continuing operations grew 69.6% from the year-ago value to $9.88 billion, while its adjusted income improved 93.5% year-over-year to $11.66 billion. The company's adjusted earnings per common share increased 92.5% from its year-ago value to $2.04.

Street EPS estimate of $1.35 for the fourth fiscal quarter ending December 2022 indicates a 24.9% improvement year-over-year. Analysts expect its revenue to rise 3.7% year-over-year to $24.71 billion for the same quarter. Additionally, PFE has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 4.3% over the past year to close its last trading session at $44.12.

PFE's POWR Ratings reflect this promising outlook. The company has an overall rating of A, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

PFE is rated an A in Value and a B in Quality. Within the Medical – Pharmaceuticals industry, it is ranked #12 out of 164 stocks.

To see additional POWR Ratings for Growth, Momentum, Stability, and Sentiment for PFE, click here.

Merck & Co., Inc. (MRK)

MRK is a global healthcare company operating through its two broad segments - Pharmaceutical, which offers human health pharmaceutical products; and Animal Health, which develops and markets veterinary pharmaceuticals.

On September 27, MRK announced that KEYTRUDA, its anti-PD-1 therapy, had received four new approvals from Japan's Ministry of Health, Labor and Welfare (MHLW). The approval is expected to provide additional treatment options for appropriate patients with difficult-to-treat cancers and boost the company's sales in Japan.

On September 22, MRK's division, Merck Animal Health, announced that it had signed a definitive agreement to acquire Vence, a rotational grazing and livestock management innovator. The acquisition is expected to broaden the company's portfolio with complementary products.

On July 26, MRK declared a quarterly dividend of $0.69 per share on its common stock, payable to shareholders on October 7. Its $2.76 per share annual dividend yields 3.12% on the current price. The company's dividend payouts have grown at a 9% CAGR over the past five years. The company has a record of 11 consecutive years of dividend growth.

MRK's sales increased 28% year-over-year to $14.59 billion in the fiscal second quarter, which ended June 30, 2022. The company's non-GAAP net income grew 204.2% from the year-ago quarter to $4.74 billion. Its non-GAAP earnings per share rose 206.6% year-over-year to $1.87.

The consensus revenue estimate of $58.61 billion for the fiscal year ending December 2022 reflects a 20.4% increase from the same period last year. The consensus EPS estimate of $7.38 for the same year indicates a 22.7% improvement year-over-year. The company has an impressive surprise earnings history, as it has surpassed consensus EPS estimates in each of the trailing four quarters.

The stock has gained 15.3% year-to-date and 5.6% over the past six months to close its last trading session at $88.39. The stock has gained 1.9% over the past five days.

It's no surprise that MRK has an overall A grade, equating to a Strong Buy in our proprietary rating system.

MRK is rated a B in Growth, Value, Sentiment, and Quality. Within the Medical - Pharmaceuticals industry, it is ranked #1.

Click here to see additional POWR Ratings for Momentum and Stability for MRK.

Valero Energy Corporation (VLO)  

VLO manufactures, markets, and sells transportation fuels and petrochemical products globally. The company operates through three segments: Refining; Renewable Diesel; and Ethanol.   

On September 26, VLO announced that it had reduced its debt by approximately $1.25 billion in September. This transaction, combined with debt reduction and refinancing transactions completed in the second half of 2021 and the first half of 2022, collectively reduced VLO's debt by approximately $3.60 billion.

On July 21, VLO declared a regular quarterly dividend on its common stock of $0.98 per share, which was payable to shareholders on September 1. Its annual dividend of $1.60 yields 3.60% on current prices. The company's dividend payouts have increased at a 5.7% CAGR over the past three years.

VLO's revenue increased 86.1% year-over-year to $51.64 billion in the second quarter that ended June 30. Its operating income grew 1,121.8% from the year-ago value to $6.22 billion, while adjusted net income attributable to VLO stockholders improved 1,672.7% year-over-year to $4.61 billion. The company's adjusted earnings per common share rose 1,703.2% from its year-ago value to $11.36. 

The consensus EPS estimate of $7.20 for the fiscal third quarter that ended September 2022 indicates a 489.9% improvement year-over-year. Revenue is expected to increase 51.9% from the same period last year to $44.85 billion for the same quarter. Additionally, VLO has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.

The stock has gained 58.9% over the past year and 16.4% year-to-date to close its last trading session at $118.09. It has gained 10.1% over the past five days.

This promising prospect is reflected in VLO's POWR Ratings. VLO has an overall A rating which translates to a Strong Buy in our proprietary rating system.

VLO is rated an A in Growth and Momentum and a B in Value and Quality. Within the B-rated Energy – Oil & Gas industry, it is ranked #7 out of 94 stocks.

Beyond what we've stated above, we have also given VLO grades for Stability and Sentiment. Get all the VLO ratings here.

PFE shares fell $0.08 (-0.18%) in premarket trading Thursday. Year-to-date, PFE has declined -23.67%, versus a -19.89% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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