When stock prices fall, it seems exciting to see them double. After all, it has a gambling feel and the possibility of winning big.
But you should resist the urge to make huge investments just because a company’s share price has fallen. Remember, gamblers don’t make money over long periods of time. But smart long-term investors can make huge profits.
So, how do you make sure you’re not wasting your money? One way is to look at dividend-paying companies whose shares have declined due to macroeconomic concerns, but whose underlying businesses remain strong.
Royal Caribbean Cruises (RCL +1.65%) And lennar (lane +2.18%) Fit the bill. They cyclical companies The results of which fluctuate with the economic cycle, but investors can confidently collect dividends while waiting for their stock prices to recover.
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1. Royal Caribbean Cruises
Even as consumers faced challenges posed by persistently high prices and concerns about their jobs, Royal Caribbean Cruises posted strong results.
First-quarter revenue increased 11% year over year to $4.5 billion. And management has similar expectations for the year, projecting 10% revenue growth.
However, if the economy weakens significantly, Royal Caribbean’s higher-income travelers will also feel the impact. This could hurt revenues, and if oil prices remain high, fuel costs will also impact profitability.
Investors seem worried about this possibility. They’ve sent shares down 4.8% this year (as of May 1). During this time, S&P 500 index There has been an increase of 5.6%.
today’s change
(1.65%) $4.27
current price
$263.75
key data points
market cap
$71B
day limit
$258.59 -$264.38
52wk range
$225.95 -$366.50
volume
7K
average volume
2.6
gross margin
40.12%
dividend yield
1.61%
Still, if this economic scenario plays out, demand should pick up again as people once again clamor for Royal Caribbean cruises as the economy improves. Meanwhile, Royal Caribbean recently increased its quarterly dividend by 50% to $1.50 per share.
At the new rate, the shares have a dividend yield of 2.3%. That’s more than double the S&P 500’s yield of 1.1%.
With a payout ratio of 26%, investors can be reassured by the fact that Royal Caribbean can easily afford the payouts, even in the event of a sharp decline in earnings.
2.Lennar
Lennar has been one home builder For more than 70 years. It builds single-family homes targeting first-time, move-in, active adult and luxury home buyers. Historically, it has been known to target first-time and move-up buyers.
As mortgage rates increase due to higher interest rates, buyers generally shy away from purchasing a home. According to the U.S. Census Bureau, new home sales fell to 587,000 in January, down 17.6% from a year earlier. The average selling price fell 6.8%, which was not enough to boost unit sales.
The 30-year fixed rate mortgage was at 6.3% at the end of April, with long-term interest rates rising due to fears over inflation due to the Iran war. freddie mac. The rate remained at around 6% in the first two months of the year, until the military crackdown began in late February.
With this difficult economic and housing environment, it’s no surprise that Lennar’s revenues took a hit. The company’s first-quarter homebuilding revenue fell 13% from a year earlier to $6.3 billion. The average price declined by 8% and the number of homes delivered fell by 5%.
Lennar’s stock price performance reflects these short-term challenges. Shares have fallen 14% this year.
today’s change
(2.18%) $1.84
current price
$86.20
key data points
market cap
$21B
day limit
$84.64 -$87.51
52wk range
$83.03 -$144.24
volume
38K
average volume
2.9M
gross margin
16.72%
dividend yield
2.32%
But Lennar has come through challenging times and not only survived, but thrived. With the company’s knowledge and experience, it will undoubtedly do so again. After all, people need and want homes, and demand will pick up again when economic conditions improve.
The company has increased its dividend every few years. It currently pays a quarterly rate of $0.50 per share. This equates to a market-beating 2.3% dividend yield.
And Lennar can easily afford these dividend payments. Its payout ratio is 29%. This provides a good cushion, even if earnings continue to decline for some time.