August 9, 2022, Church & Dwight (NYSE: CHD) and McDonald’s Corporation (NYSE: MCD)
These two significant dividend payers look like the best stocks to buy now.
This week and the subsequent months could go one of two ways. Markets kicked off the second week in August mixed with marginal moves for now. As investors anxiously await economic data, including July’s CPI reading tomorrow (August 10, 2022), the Dow rose 29 points (0.09%), while the S&P fell 0.12% and the Nasdaq dipped 0.10%. So with unpredictability paramount, consider dividend kings like Church & Dwight (NYSE: CHD) and McDonald’s Corporation (NYSE: MCD) the best stocks to buy now.
Church & Dwight is a consumer brands powerhouse best known for companies like ARM & HAMMER, Trojan, First Response, Nair, Spinbrush, OxiClean, Orajel, Vitafusion, WaterPik, and ZICAM. On the other hand, McDonald’s is, well, McDonald’s. The McDonald’s brand name speaks for itself as the world’s largest fast-food restaurant chain with more than 39,000 locations in about 100 countries.
Both stocks, while different, offer a lot in this environment. They are clearly the best stocks to buy now for many reasons, including consumer demand, consistent earnings and dividend growth, rock-solid fundamentals, and analyst upside.
The market and economy remain tense despite the stock market’s stability over the last two months. However, as the Fed tees up another potential 75 bps rate hike next month, diversify and protect your portfolio with these companies. They are clearly must-haves as the best stocks to buy now.
Church & Dwight (NYSE: CHD)
The consumer brands conglomerate offers impressive dividends, safety, and a double-digit upside.
Church & Dwight might not be a household name, but its products are probably in your household. We briefly mentioned some of its best-known brand names, but a picture is worth a thousand words.
Source: Licensing International
CHD is a consumer brand stock, potentially leveraged to the upside of inflation and likely recession-proof. Since its inception in the 1840s, CHD has seen consistent demand with well-known and invincible brands. Its brands are also considerably more affordable than those of competitors like P&G and offer significantly cheaper alternatives to customers.
Its long-term stock chart shows how its consistency has weathered way worse storms than the current economic climate. CHD simply got to this point by listening to its customers.
So without further ado, let’s dive deeper into the stock’s earnings, fundamentals, and more and explain why it’s one of the best stocks to buy now.
14 Straight Quarterly Earnings Beats Speaks to Resiliency and Consistency
If you want more photographic evidence of CHD’s remarkable consistency, just look at this chart from Zacks depicting its earnings surprises. CHD beat its Q2 estimates on July 29, 2022, marking the 14th consecutive quarter it surprised to the upside.
Only once in the last five years did it not beat its earnings estimates.
Source: Yahoo! Finance
Much of Church & Dwight’s Q2 figures were aligned with analyst estimates. EPS came in at $0.76 compared to the consensus estimate of $0.72, and revenue came in at $1.33 billion compared to the consensus estimate of $1.34 billion. Revenue also increased 4.2% year-over-year. Consistent demand also helped the Company see consumption gains in 11 of 17 domestic categories.
With stability comes consistent growth, which is why earnings for Church & Dwight are expected to grow by 8.28% in the coming year, and its revenue could grow at an 8.2% 5-year CAGR.
Fundamental Stability and Dividend Strength
First and foremost, CHD has strong cash flows which can sufficiently cover interest payments. Its free cash flow margins have also consistently risen over the past decade. Its average free cash flow margin is 16.4%, and its five-year average is 17.4%. It also boasts a 4.0% free cash flow yield.
But, arguably, its most vital selling point is its dividend, and its cash flow is to thank for that. Without such strong cash flows, CHD could not consistently increase its dividend for 27 years at a 3-year 5.10% annualized growth rate.
Church & Dwight has a 1.20% dividend yield, an annual dividend of $1.05, and a healthy 32.2% payout ratio. With metrics like this, it’s probably not shocking that the dividend could grow another 4.0% at a 7.3% 5-year CAGR.
Further bolstering its case as one of the best stocks to buy now from a fundamental perspective is its strong institutional ownership and solid margins. 86.77% of its shares are held by institutions, and it boasts the following margins that indicate profitability, operational efficiency, and outstanding use of its equity.
The best part? You’re getting all this at a potential discount with the stock roughly -16.54% below its highs.
If you just went off these fundamentals alone, you could explain why it’s one of the best stocks to buy now.
But there’s more.
Truist Sees a Double-Digit Upside for Church & Dwight
According to TipRanks, 12 Wall Street analysts offered 12-month price targets for Church & Dwight in the last 3 months. It currently trades with a high price target of $110.00, a low of $76.00, and an average of $92.55. The average price target represents a 5.61% upside from August 8, 2022’s $87.63 close.
As of late, other analysts see considerably more upside than this average price target would indicate. Truist Financial’s recent $100.00 price target notably represents a 14.12% upside.
Moreover:
- The Goldman Sachs Group has a $93.00 price target
- Wells Fargo & Company has a $95.00 price target
- Deutsche Bank has a $93.00 price target
CHD’s year-to-date low and high are $80.34 and $105.00, respectively.
McDonald’s Corporation (NYSE: MCD)
The fast-food giant’s stock is scorching hot and could have another 20+% to run.
No matter the economic situation or recession risks, McDonald’s is still McDonald’s.
Forget that fast-food stocks traditionally do well during inflation and recessions. McDonald’s is the cream of the crop in this sector, the largest fast food company on earth, and a financial powerhouse.
First of all, McDonald’s has been raising their menu prices thanks to inflation but has done so slower than others, which customers clearly appreciate. After all, earnings are ahead of where they were pre-pandemic.
McDonald’s also has universal appeal and brand equity, consistency and efficiency, a dividend that’s increased for 46 consecutive years, and mounting analyst upside.
The best part is this mounting analyst upside has come despite the stock trading near 52-week highs and surging 18.63% since March’s lows. That sounds like a company to see as one of the best stocks to buy now.
Already Past Pre-Pandemic Earnings, MCD Is Nowhere Near Peak Growth
Before discussing McDonald’s Q2 earnings, let’s consider how resilient this Company is. McDonald’s is now officially ahead of where it was before the pandemic in revenue. Revenue was $21.3 billion in 2019 compared to $23.2 billion in 2021. During that period, global comparable sales also increased 9.7% across all business segments while the U.S. alone rose 3.7%, beating S&P 500 projections.
On July 26, 2022, McDonald’s reported its Q2 2022 figures. Although revenue came up slightly short, global comparable sales in Q2 grew 10%, and sales in its six largest markets exceeded $6 billion.
Most notably, EPS came in at $2.55, beating the consensus estimate of $2.47 by $0.08. This marked an 11.84% quarter-over-quarter increase and a mind-blowing 286.36% year-over-year increase.
Source: MarketBeat
If this doesn’t prove that McDonald’s has universal appeal even during inflation and relative to other fast food places, nothing will. Perhaps that’s why earnings for McDonald’s are expected to grow by 7.35% in the coming year.
Dividend Royalty With Bulletproof Margins
MCD isn’t precisely what you would call a value stock at the moment. Still, its dividend aristocracy and rock-solid margins make it worth it and one of the best stocks to buy now.
First is the dividend and dividend growth track record because that’s arguably the most significant selling point for this stock. McDonald’s currently has a 2.15% dividend yield that’s grown for 46 Years years in a row at a 7.81% 3-year annual growth rate. Although its payout ratio is higher than ideal, it’s realistic to think this dividend could keep growing at a 7.0% clip and 8.0% 5-year CAGR.
Second are its margins that display outstanding profitability, efficiency, and operations, such as its
Technicals are Starting to Signal BUY As Well
Numbers don’t lie, and neither do charts. BarChart notes that based on several short-term, medium-term, and long-term indicators, McDonald’s looks like a BUY. These indicators include its
- 20 – 50 Day MACD Oscillator
- 20 – 100 Day MACD Oscillator
- 20 – 200 Day MACD Oscillator
- 50 Day Moving Average
- 50 – 100 Day MACD Oscillator
- 50 – 150 Day MACD Oscillator
- 100 Day Moving Average
- 150 Day Moving Average
- 200 Day Moving Average
Furthermore, BarChart notes that while McDonald’s has broken past all three support levels, it remains below all three of its resistance points. This means it could have more room to run from a technical perspective.
A STRONG BUY With Countless Analysts Upgrades and a Potential 18.79% Upside
We aren’t the only ones who say McDonald’s is one of the best stocks to buy now. According to TipRanks, McDonald’s is a STRONG BUY. That’s because out of 22 Wall Street analysts who offered 12-month price targets for MCD in the last 3 months, 19 rated it a BUY. The stock currently has a high price target of $305.00, a low of $250.00, and an average of $281.27. The average price target represents a 9.55% upside from August 8, 2022’s closing price of $256.75.
Additionally, during its earnings week (July 27, 2022), several analysts maintained or boosted price targets with even more upside. The Royal Bank of Canada notably had the street-high after keeping its OUTPERFORM rating and raising its price target from $292.00 to $305.00, representing an 18.79% upside.
Other analysts with bullish calls included:
- Guggenheim- Kept OUTPERFORM rating and boosted target to $290.00
- Credit Suisse Group- Kept OUTPERFORM rating and increased target from $285.00 to $287.00.
- Jefferies Financial Group- Kept BUY rating and had a $298.00 price target
- KeyCorp- Kept OVERWEIGHT rating and rose target from $285.00 to $290.00
- Cowen- Kept OUTPERFORM rating and increased target from $275.00 to $290.00
- Barclays- Kept OUTPERFORM rating a $285.00 price target
- BMO Capital Markets- Kept OUTPERFORM rating and rose target from $270.00 to $285.00
MCD’s year-to-date low and high are $216.48 and $268.16, respectively.
