Wolfe Research eyeing stocks with dividend growth, strong cash flow

Persistent inflation and questions over when the Federal Reserve will cut interest rates remain headwinds to equities. Stocks have ticked higher in recent sessions, however, due to commentary from the central bank that the Fed’s next move is not likely to be a rate hike. First-quarter earnings reports that showed better-than-expected results across the board and soft labor market data also have helped make investors more optimistic. Against this backdrop, Wolfe Research screened for stocks that can help investors navigate a still challenging macroeconomic backdrop. “One of our favorite dividend strategies is to buy companies with a virtuous combination of (1) high dividend growth, and (2) a high free cash flow yield,” Wolfe Research’s Chris Senyek wrote. This collection of stocks has historically outperformed the broader market by roughly 500 basis points annually, he said. Johnson & Johnson was one of the companies that made the cut. Its stock has ticked down more than 4% in 2024, but its dividends have grown 58% over the past 12 months. The company surpassed Wall Street earnings estimates in its most recent quarter due to an increase in medical device sales. Johnson & Johnson also said earlier in May it would spend $6.5 billion to resolve all outstanding litigation in the U.S. tied to claims its talc power caused ovarian cancer. JNJ YTD mountain Johnson & Johnson stock. HP Inc. also made the list. Shares of the personal computer company have fallen 1.2% in 2024. The company has seen its dividend expand 5% over the past 12 months, alongside a 2024 full-year free cash flow yield of 9%. HPQ YTD mountain HP Inc. stock. The company is due to report its fiscal second-quarter results on May 29. In January, HP CEO Enrique Lores said he saw “significant tailwinds” that will help drive demand for PCs, including artificial intelligence. Constellation Energy stock has soared more than 85% in 2024, and it has doubled its dividends over the past 12 months. The electric power and natural gas provider posted an earnings beat last week, and reiterated its full-year guidance from December. Executives told investors on its earnings call on May 9 that Constellation authorized an additional $1 billion in share buybacks, adding to the $500 million program it executed on throughout the first quarter. CEG YTD mountain Constellation Energy shares With the company looking to add more nuclear power generation in the U.S., it is seen as a critical player in the effort to meet increased electric demand in the coming years. Other picks on the Wolfe list include eBay and Vistra Energy . — CNBC’s Michael Bloom contributed to this report.