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Tags: mega-cap stocks | retirement investing | jpmorgan chase | broadcom | unitedhealth group | blue-chip stocks

Bob Ciura: 3 Mega-Cap Stocks for Long-Term Returns

Bob Ciura: 3 Mega-Cap Stocks for Long-Term Returns

Bob Ciura By Thursday, 30 June 2022 03:52 PM EDT Current | Bio | Archive

Mega-cap stocks are defined as stocks with market capitalizations above $200 billion. As a result, there are certain advantages to buying mega-caps, such as the relative safety that comes with investing in the world’s largest businesses.

Mega-cap stocks tend to generate steady profits during recessions, and many pay dividends to shareholders. While mega-cap stocks may not offer the growth potential of small-caps, they become much more appealing during bear markets. Investors looking for quality dividend stocks during a downturn should consider these 3 mega-cap stocks.

Mega-Cap Stock: JP Morgan Chase (JPM)

JPMorgan is a global banking behemoth with a $337 billion market capitalization and about $124 billion in annual revenue. JPMorgan competes in every major segment of financial services, including consumer banking, commercial banking, home lending, credit cards, asset management and investment banking.

JPMorgan Chase reported first quarter earnings on April 13th, 2022, and results were somewhat mixed, with revenue coming in ahead of expectations, while earnings missed the mark. Earnings-per-share came to $2.63 in Q1, which was seven cents less than expected. In addition, earnings declined from $3.33 in Q4 of 2021, and from $4.50 in Q1 of 2021. Total revenue was down 5% year-over-year to $30.7 billion, but did beat expectations by $170 million. Provisions for credit losses were $1.46 billion, versus a benefit of $1.29 billion in Q4, and a benefit of $4.16 billion in the year-ago period.

Total loans ended the period at $1.07 trillion, essentially flat with the prior quarter. Total deposits were $2.56 trillion, up from $2.46 trillion as the company continues to take deposits without lending them.

Earnings-per-share growth will be boosted by the company’s aggressive share repurchases. JPM management approved a new buyback authorization of $30 billion, starting on May 1st, 2022, making it one of the largest buyback programs in the US. At the current share price, such a buyback would retire about 8% of the company’s outstanding shares.

Future growth will result in additional dividend increases. Shares of JPM currently yield 3.5%.

Mega-Cap Stock: Broadcom Inc. (AVGO)

Broadcom designs, develops and sells semiconductors under the following business units: Wired infrastructure, wireless communication, enterprise storage and industrial. Its offerings include data center chips, factory automation, energy systems and power generation, broadband access, and home connectivity.

The company continues to generate strong growth, even in a difficult economic backdrop. In the most recent quarter, company revenue of $7.7 billion increased 16% while earnings-per-share came in at $8.39 for the first quarter, which was ahead of the analyst consensus.

Broadcom has generated excellent historical growth. In fact, earnings-per-share rose tenfold between 2011 and 2020. This earnings growth was driven by a significant number of acquisitions. Broadcom’s biggest market is wireless communication, where the company owns a strong connectivity portfolio that

includes advanced LTE, Bluetooth 5.x, Wi-Fi, GNSS (GPS, Galileo, etc.), and so on. Broadcom is also well positioned in the enterprise storage market, where it provides switching and other connectivity solutions.

Shareholders will naturally benefit from this growth, through rising dividends. Broadcom’s dividend payout ratio has risen considerably over the last couple of years, due to the large dividend increases that Broadcom has offered to its owners. Between 2010 and 2021, Broadcom increased its dividend by an incredible factor of more than 100.

Broadcom’s dividend still looks relatively safe, as it is well-covered by both profits as well as by the cash flows that the company generates. Shares currently yield 3.3%, a relatively high yield for a tech stock.

Mega-Cap Stock: UnitedHealth Group (UNH)

UnitedHealth offers global healthcare services to tens of millions of people via a wide array of products. The company has two major reporting segments: UnitedHealth and Optum. The former provides global healthcare benefits to individuals, employers and Medicare/Medicaid beneficiaries. The Optum segment is a services business that seeks to lower healthcare costs and optimize outcomes for its customers. UnitedHealth has a market capitalization above $450 billion, while the company generates annual revenue above $250 billion.

UnitedHealth reported first quarter earnings on April 14th, 2022, and results were once again much better than expected. The company posted adjusted earnings-per-share of $5.49, which was 14 cents better than expected. Likewise, revenue rose 14% year-over-year to $80.1 billion, beating estimates by $1.3 billion. Revenue from UnitedHealthcare was up 13.6% year-over-year to $62.6 billion while revenue from Optum soared 19% to $43.3 billion.

The company guided for adjusted earnings-per-share of $21.20 to $21.70 for this year. This means UnitedHealth is poised to continue increasing its dividend for many years, as it has done in the past. In June, UnitedHealth raised its dividend by 14%, a very healthy increase, particularly in the midst of a potential recession. UnitedHealth has increased its dividend for over 10 consecutive years, and with an estimated 2022 dividend payout ratio of 27%, there is plenty of room for continued dividend growth.

UnitedHealth could conceivably increase its dividend by 10% per year, without moving its dividend payout ratio much at all. This is because the company continues to increase its earnings-per-share at an impressive rate. And, even though UnitedHealth stock has a current yield of 1.4%, investors could see their dividend income grow rapidly over the years.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.

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Mega-cap stocks are defined as stocks with market capitalizations above $200 billion. As a result, there are certain advantages to buying mega-caps, such as the relative safety that comes with investing in the world's largest businesses.
mega-cap stocks, retirement investing, jpmorgan chase, broadcom, unitedhealth group, blue-chip stocks
Thursday, 30 June 2022 03:52 PM
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