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U.S. stocks staged a strong comeback last week, with the S&P 500 gaining nearly 4% as it shrugged off recession woes. It’s the strongest week since 2023, with benchmark index levels just 2% off last month’s record high.
This can be attributed to strong advanced retail sales in July, which rose 1% month-on-month, beating the modest 0.3% expectations of Dow Jones economists.
Inflation is also showing signs of cooling, with the consumer price index rising just 2.9% last month, the slowest increase since March 2021. As a result, investors now believe there is a 75% chance of a 25 basis point rate cut in September.
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Is the worst over?
While markets appear to have recovered from the downturn earlier this month, many analysts still predict that carry trade problems will continue for the foreseeable future.
“I would dismiss a lot of those stories. You don’t have real data to price your carry trades that we know of,” said Richard Kelly, head of global strategy at TD Securities. “I think there’s a lot of unwinding to be done, especially when you look at how undervalued the yen is. That’s going to change valuations for the next one to two years. That’s going to have spillover effects.”
Goldman Sachs strategists also predict that the unwinding of the carry trade could continue for some time as US stocks still have significant exposure to the Japanese yen.
“We are skeptical that the yen has been used so extensively as an outright financier of longs elsewhere, particularly in the case of U.S. technology stocks,” the analysts said.
Dodge & Cox’s foolproof strategy
It’s no secret that investment gurus believe that one of the safest bets in a volatile market environment is to put your money into stable dividend-paying stocks. Dodge & Cox, a leading mutual fund firm that has been in business since 1930, has been steadily investing more in well-known defensive industry stalwarts with healthy dividend payouts, according to its 13F filing for the second quarter of 2024 (ended June 30).
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CVS Health
CVS Health Corporation (NYSE:CVS), one of the largest retail pharmaceutical giants in the U.S., has long been a favorite dividend stock for investors. Although the company paused its payouts in 2017 following its acquisition of Aetna, CVS had increased its dividends at a compound annual growth rate (CAGR) of 25% over the previous five years.
The company appears to be back in action, as it raised its quarterly dividend payments by 9.92% to $0.665 earlier this year, after a 10% increase last year. CVS Health pays $2.66 in annual dividends, which equates to 4.56% on the current price.
Dodge & Cox increased its investment in CVS Health by 49.7% in the latest quarter. The mutual fund company currently owns more than 41 million shares of the retail pharmacy chain, valued at more than $2.4 billion as of June 30.
Johnson Controls
Johnson Controls International plc (NYSE:JCI), based in Ireland, is the world’s largest provider of building technology and software solutions. The company is known in the investment community as a reliable source of dividends, having paid dividends every year since 1887.
Johnson Controls pays $1.48 in annual dividends, which equates to 2.13% of the current price. The company recently restructured its HVAC and Air Distribution business to streamline its operations, which is expected to improve its profit margins.
For fiscal 2024, Johnson Controls expects organic revenue and adjusted segment EBITDA to increase 3% and 110 basis points year over year, respectively. The company also updated its adjusted EPS (before special items) forecast to $3.66-$3.69, up from the previous forecast range of $3.60-$3.75.
Interestingly, Dodge & Cox increased its stake in Johnson Controls by 8.93% in the fiscal second quarter, bringing the total number of JCI shares held to more than 41.7 million. Dodge & Cox’s stake in Johnson Controls is valued at more than $2.77 billion as of June 30.
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This article Dodge & Cox Is Poised to Take on These Dividend Stocks originally appeared on Benzinga.com
