Berkshire Hathaway recently set a new all-time high market value. Even more remarkable, the firm was able to do so even as the S&P 500 index dropped roughly 5% over the course of 2022, and the Nasdaq Composite index fell approximately 10.5%.
Despite the fact that Berkshire’s growth has been breathtaking, investors may be able to do better in the future by investing in stocks that pay dividends and have lost ground rather than buying Berkshire at its peak. The two top dividend stocks recommended by a panel of contributors are Clorox ( CLX ) and Starbucks ( SBUX ).
Cleaning up while also helping the world clean up
Clorox was all the rage at the start of 2020, when the world was trying to do everything it could to keep businesses and homes clean. That romance, however, wasn’t meant to last. This stock has dropped 40% from its mid-2020 peak, and it is still close to new 52-week lows. The post-Covid slowdown and increasing expenses are putting a strain on this company.
The sellers, however, might have overshot their target.
Despite commodity price inflation, it is making things hard for all consumer goods and their clients. Consumers, however, still require bleach, salad dressing, charcoal and lip balm, regardless of the cost. Clorox sells everything and more, demonstrating a healthy dividend yield of 3.4 percent as a result of what has become a strong dividend payout ratio of 80%.
It’s not like higher expenses or customers refusing to pay more are a genuine danger to this firm’s payout. Last year’s dividend payments were worth $4.55 per share, yet Clorox made $7.25 per share. That leaves plenty of flexibility for even the most unexpected of short-term problems.
A solid dividend stock that has growth opportunities
When a great firm’s stock drops for what seems to be short-term issues, that is when the best buying opportunities in the stock market arise. Starbuck is presently in this ideal position.
The last five years have been difficult for Starbucks, and the numbers prove it. When compared to the S&P 500 and Nasdaq Composite, Starbucks stock has only generated a 69% total return over the past five years.
Starbucks’ stock price plummeted in the wake of the U.S.-China trade war, which reached a breaking point in 2018. Starbucks’ second-largest market is China. It had over 5,500 stores throughout China at the end of Q1 FY 2022, accounting for 16% of total locations.
Starbucks was devastated by the COVID-19 epidemic just 15 months later. Starbucks is based on people commuting to work, going out, or doing other things. The pandemic has yet to fully recover.
Starbucks has been sensitive to inflation since the early 1990s. Its answer has been to pass along those expenses to consumers through higher prices. It’s also dealing with paying staff more and the possibility of labor action.
Starbucks hasn’t ever been able to really establish itself and gain momentum, even after hitting an all-time high in July 2021. And that makes it a difficult business to invest in at the moment.
However, when looking at the big picture, Starbucks is one of the top brands in the world, with a clear path to increasing its market for years to come. Starbucks has done a great job developing its loyalty program, encouraging mobile payments and grab-and-go transactions that allow it to grow sales. Customized beverages and food pairings are attracting more consumers, resulting in higher revenue per transaction. Starbucks’ growth may be driven by the opening of more locations. However, same-store comps have a lot of runway as Starbucks converts a greater percentage of its locations to include drive-thrus.
Finally, consider that the stock is down 31% from its all-time high, has a price-to-earnings ratio of just 23, and pays out a 2.3 percent dividend yield. You have a strong long-term investment opportunity with these closing factors considered.