It is hard to believe, but 2021 will end in just a little over a week. Many investors will be reviewing their portfolios and making changes for 2022. With the Federal Reserve laying out its plans for interest rate increases, including three now expected for both 2022 and 2023, and a doubling of the tapering of the quantitative easing program to $30 billion per month, many feel Wall Street now knows what to expect going forward. Top strategists noted last week that the Fed meeting removed a key overhang on a market that had been positioned defensively, perhaps expecting an even more hawkish tone.
It makes sense now to move from the momentum and meme stocks to more conservative large cap stocks that pay dividends. With all the major indexes up 20% and more year to date, and the median price to earnings for the S&P 500 at the highest level since the dot-com collapse in 1999 and 2000, something has to give. So moving to mega-cap dividend stocks may very well be the best total return strategy for next year, especially with most Wall Street strategists calling for just single-digit percentage gains.
We screened the Dow Jones industrial average looking for the highest yielding companies, and all were in more defensive sectors, or in the case of one top company, very undervalued. All their stocks are rated Buy at major Wall Street firms, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This stock certainly offers investors growth and income potential. Dow Inc. (NYSE: DOW) is a leading materials science company and was formed from the merger of Dow and DuPont in 2017 and the subsequent spin-off 2019. The company is organized into three principal divisions: Performance Materials & Coatings (23% of EBITDA), Industrial Intermediates & Infrastructure (27%) and Packaging & Specialty Plastics (51%).
Dow’s segments include Agricultural Sciences, which is engaged in providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The Consumer Solutions segment consists of Consumer Care, Dow Automotive Systems, Dow Electronic Materials and Consumer Solutions-Silicones businesses.
The Infrastructure Solutions segment consists of Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, Performance Monomers and Infrastructure Solutions-Silicones businesses. Performance Materials & Chemicals consists of Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes businesses. The Performance Plastics unit consists of Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons businesses.
Investors receive a 5.23% dividend. Piper Sandler’s $78 price objective on Dow stock is well above the $65.43 consensus target price and Tuesday’s close of $54.20 a share.