3 Best Stocks to Own for Passive Income in 2023

The Fed is expected to keep hiking rates to achieve its target inflation rate. Amid rising volatility, investor sentiment toward dividend investing has been improving. Here are three quality dividend-paying stocks, Novartis (NVS), Bristol-Myers Squibb (BMY), and Canon (CAJ), which will ensure a steady passive income stream in 2023. Keep reading.

Amid a tight labor market and steady consumer spending, the Fed is expected to launch further rate hikes as inflation remains far from its target. Market volatility is rife, as evident from the CBOE Volatility Index’s 4.5% gains over the past month. Considering the market uncertainties, dividend-paying stocks could provide some hedge and help ensure a stable income stream.

I think quality stocks Novartis AG (NVS), Bristol-Myers Squibb Company (BMY), and Canon Inc. (CAJ) could make ideal buys for passive income in 2023.

According to data from Refinitiv Lipper, investors recently spilled $272 million into U.S. mutual and exchange-traded funds that buy dividend-paying stocks.

Christopher Huemmer, the senior investment strategist for FlexShares Exchange Traded Funds at Northern Trust Asset Management, said, “Dividend income will be a crucial component of total returns.” Investors’ interest in dividend stocks is evident from the Global X S&P 500 Quality Dividend ETF’s (QDIV) 4.3% gains over the past three months.

So, let’s delve deeper into the stocks mentioned above:

Novartis AG (NVS)

Headquartered in Basel, Switzerland, NVS researches, develops, manufactures, and markets healthcare products in Switzerland and internationally. The company operates through two segments: Innovative Medicines and Sandoz.

NVS’ dividend payouts have increased at 5.5% CAGR over the past three years. Its current dividend yield is 4.08%, and its four-year average yield is 3.59%.

NVS’ forward EV/Sales of 3.60x is 6.8% lower than the industry average of 3.86x. Its forward Price/Sales of 3.42x is 22.5% lower than the industry average of 4.41x.

Its trailing-12-month gross profit margin of 70.90% is 26.9% higher than the industry average of 55.89%, while its trailing-12-month EBITDA margin of 34.74% is 925.3% higher than the industry average of 3.39%.

NVS’ core net income came in at $3.25 billion for the 2022 fourth quarter, up 6.8% year-over-year. Its core EPS increased 11.8% year-over-year to $1.52. Also, its free cash flow came in at $3.55 billion, representing a 17.3% year-over-year rise.

Analysts expect NVS’ revenue to increase 3.6% year-over-year to $52.39 billion for the current fiscal year 2023. Its EPS is expected to increase 7.2% year-over-year to $6.56 in 2023. It surpassed EPS estimates in all four trailing quarters. NVS’ shares have gained marginally intraday to close the last trading session at $85.12.

NVS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

NVS has an A grade for Stability and a B for Value, Sentiment, and Quality. Within the Medical – Pharmaceuticals industry, it is ranked #3 out of 171 stocks. Click here for the additional POWR Rating for Growth and Momentum for NVS.

Bristol-Myers Squibb Company (BMY)

BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers products for hematology, oncology, cardiovascular, immunology, fibrotic, and neuroscience diseases.

BMY has paid dividends for six consecutive years. Its dividend payouts have increased at 9.2% CAGR over the past three years. Its current dividend yield is 3.30%. Its four-year average yield is 3.02%.

BMY’s forward EV/Sales of 3.77x is 2.3% lower than the industry average of 3.86x. Its forward Price/Sales of 3.09x is 29.9% lower than the industry average of 4.41x.

Its trailing-12-month gross profit margin of 78.81% is 41% higher than the industry average of 55.89%. Its trailing-12-month EBITDA margin of 43.68% is substantially higher than the industry average of 3.39%.

BMY’s total in-line products U.S. revenues came in at $5.27 billion for the fourth quarter that ended December 31, 2022, up 11.7% year-over-year. Its U.S. total revenues increased 5.4% year-over-year to $7.92 billion.

Street expects BMY’s revenue to increase marginally year-over-year to $46.94 billion in the current fiscal year, 2023. Its EPS is estimated to rise 4.7% year-over-year to $8.06 in 2023. It surpassed EPS estimates in all four trailing quarters. The stock has gained marginally over the past year to close the last trading session at $69.19.

It’s no surprise that BMY has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Value and a B for Growth, Stability, Sentiment, and Quality.

BMY is ranked #2 out of 171 stocks in the Medical – Pharmaceuticals industry. Get additional POWR Ratings for BMY (Momentum) here.

Canon Inc. (CAJ)

Headquartered in Tokyo, Japan, CAJ and its subsidiaries manufacture and sell office multifunction devices, plain paper copying machines, laser and inkjet printers, cameras, diagnostic equipment, and lithography equipment. Its four segments are Printing Business Unit; Imaging Business Unit; Medical Business Unit; and Industrial and Others Business Unit.

CAJ’s dividend payouts have increased at 6.6% CAGR over the past three years. Its current dividend yield is 4.27%, while its four-year average yield is 3.87%.

CAJ’s forward EV/Sales of 0.78x is 72.5% lower than the industry average of 2.83x. Its forward Price/Sales of 0.71x is 74% lower than the industry average of 2.75x.

Its trailing-12-month EBITDA margin of 14.38% is 28.2% higher than the industry average of 11.22%. Its trailing-12-month net income margin of 6.05% is 100.7% higher than the industry average of 3.02%.

CAJ’s net sales came in at ¥1.16 trillion ($8.50 billion) for the quarter that ended December 31, 2022, up 21.1% year-over-year. Its operating profit increased 29.2% year-over-year to ¥97.34 billion ($714.73 million). Moreover, its net income came in at ¥84.84 billion ($622.94 million), representing a 41.9% year-over-year increase.

CAJ’s revenue is expected to increase 5.4% year-over-year to $32.27 billion for the current fiscal year, 2023. Its EPS is expected to increase 6.7% year-over-year to $1.92 in 2023. The stock lost marginally intraday to close the last trading session at $21.53.

CAJ has an overall A rating, equating to a Strong Buy in our POWR Ratings system.

It has a B grade for Value, Stability, and Quality. It is ranked #3 out of 42 stocks in the Technology – Hardware industry. For additional CAJ ratings for Growth, Momentum, and Sentiment, click here.

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NVS shares were unchanged in premarket trading Friday. Year-to-date, NVS has declined -6.17%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.

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About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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