In this article, we discuss 12 best income stocks to invest in. If you want to see more stocks in this selection, check out 5 Best Income Stocks To Invest In.
With the current stock market volatility, many market experts are announcing that the US economy is heading towards a prolonged downturn. With two negative quarters of economic growth, there is an active debate about whether the U.S. has already plunged into a recession.
Ivory Johnson, the founder of Washington-based Delancey Wealth Management, said that he is preparing his clients for market uncertainty and it is time to maintain defensive positions. He has acquired gold, utilities, and consumer staples while boosting cash stockpiles and slashing technology positions. He noted that currently, the aim should not be to outperform the market, rather damage control should be prioritized.
Marguerita Cheng, a CFP and CEO of Blue Ocean Global Wealth in Maryland, has been watching dividend stocks. She contended that “we’re not looking for high flyers,” and opted for firms with resilient financials and a history of rising dividends. Smart investors take shelter in dividend stocks as a hedge against inflation, and some of the best income stocks to consider include Citigroup Inc. (NYSE:C), Exxon Mobil Corporation (NYSE:XOM), and Philip Morris International Inc. (NYSE:PM).
Our Methodology
We selected the following income stocks based on positive analyst coverage, strong business fundamentals, and solidity of dividend profiles. The dividend yields as of October 19 have been mentioned. We have assessed the hedge fund sentiment from Insider Monkey’s database of 895 elite hedge funds tracked as of the end of the second quarter of 2022.
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Best Income Stocks To Invest In
12. British American Tobacco p.l.c. (NYSE:BTI)
Number of Hedge Fund Holders: 17
Dividend Yield as of October 19: 7.54%
British American Tobacco p.l.c. (NYSE:BTI) is a London-based provider of tobacco and nicotine products, offering vapor, tobacco heating, modern and traditional oral nicotine products, and combustible products. On September 28, British American Tobacco p.l.c. (NYSE:BTI) declared a $0.7404 per share quarterly dividend, in line with previous. The dividend is payable on November 15, to shareholders of record on September 30. British American Tobacco p.l.c. (NYSE:BTI)’s dividend yield on October 19 came in at 7.54%.
On August 30, Barclays analyst Gaurav Jain raised the price target on British American Tobacco p.l.c. (NYSE:BTI) to 4,500 GBp from 4,400 GBp and maintained an Overweight rating on the shares.
According to Insider Monkey’s second quarter database, 17 hedge funds held stakes worth $2.3 billion in British American Tobacco p.l.c. (NYSE:BTI), compared to 19 funds in the prior quarter worth $2.2 billion. Rajiv Jain’s GQG Partners is the leading position holder in the company, with more than 34 million shares worth $1.46 billion.
In addition to Citigroup Inc. (NYSE:C), Exxon Mobil Corporation (NYSE:XOM), and Philip Morris International Inc. (NYSE:PM), elite hedge funds are piling into British American Tobacco p.l.c. (NYSE:BTI).
Here is what Distillate Capital has to say about British American Tobacco p.l.c. (NYSE:BTI) in its Q1 2022 investor letter:
“Distillate Capital’s International FSV Strategy is less expensive, more fundamentally stable, and less levered than the benchmark All Country World Ex U.S. (ACWI-EX US) Index.The largest new position is British American Tobacco (NYSE:BTI), which was not owned previously due to leverage, but now passes that threshold and offers an 11% free cash flow to market cap yield.”
11. Enbridge Inc. (NYSE:ENB)
Number of Hedge Fund Holders: 25
Dividend Yield as of October 19: 7.25%
Enbridge Inc. (NYSE:ENB) is a Canadian energy infrastructure company that operates through five segments – Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services. Enbridge Inc. (NYSE:ENB) is one of the premier income stocks to invest in, with a dividend yield of 7.25% as of October 19. Enbridge Inc. (NYSE:ENB) announced on September 29 the acquisition of U.S. renewable project developer Tri Global Energy for $270 million in cash and assumed debt. The acquisition will boost Enbridge’s renewable platform, while enhancing its North American growth strategy.
On September 19, Raymond James analyst Michael Shaw upgraded Enbridge Inc. (NYSE:ENB) to Outperform from Market Perform with a price target of C$60, up from C$57. While the stock is trading below its 2022 highs in June, the fundamental outlook for Enbridge Inc. (NYSE:ENB) has only improved, the analyst told investors in a research note. Enbridge Inc. (NYSE:ENB)’s short and medium-term growth outlook has accelerated while the company has also maintained a moderate capital allocation strategy, the analyst contended.
According to Insider Monkey’s Q2 data, 25 hedge funds were long Enbridge Inc. (NYSE:ENB), compared to 24 funds in the earlier quarter. Rajiv Jain’s GQG Partners is the leading stakeholder of the company, with 51.85 million shares worth $2.18 billion.
Here is what ClearBridge Investments Dividend Strategy has to say about Enbridge Inc. (NYSE:ENB) in its Q3 2021 investor letter:
“We are meaningfully overweight energy, particularly within North American energy infrastructure. Enbridge and Williams, our two infrastructure holdings, possess crown jewel infrastructure assets. They each deliver meaningful proportions of the overall energy produced and consumed in North America. Their revenues are backed by long-term contracts with high-quality counterparties and have little direct commodity price exposure. Their growth has been driven by the increasing production of North American energy. The advent of unconventional oil and gas production (oil sand and shale) has made North America a low-cost competitor on a global basis. We expect strong North American production to be an enduring feature of global energy supply for decades to come.”
10. Energy Transfer LP (NYSE:ET)
Number of Hedge Fund Holders: 36
Dividend Yield as of October 19: 7.76%
Energy Transfer LP (NYSE:ET) is a Texas-based company that provides energy-related services. Energy Transfer LP (NYSE:ET) owns and operates natural gas transportation pipelines and natural gas storage facilities. On August 24, the company signed a 20-year agreement with Shell plc (NYSE:SHEL) to supply 2.1 million metric tons per year of liquefied natural gas from its Lake Charles LNG export project in Louisiana. Energy Transfer LP (NYSE:ET) is one of the premier income stocks to invest in, with a dividend yield of 7.76% as of October 19.
Barclays analyst Theresa Chen on August 16 raised the price target on Energy Transfer LP (NYSE:ET) to $14 from $13 and kept an Overweight rating on the shares. The analyst believes there are still unique tailwinds within the firm’s North American midstream and refining coverage and the U.S. refining fundamentals will continue to fare well.
According to Insider Monkey’s data, 36 hedge funds were long Energy Transfer LP (NYSE:ET) at the end of Q2 2022, up from 31 funds in the prior quarter. David Abrams’ Abrams Capital Management is the largest position holder in the company, with more than 22 million shares worth $220.80 million.
Miller Value Partners, an investment firm, talked about Energy Transfer L.P. (NYSE:ET) in its Q2 2021 investor letter. Here is what the fund said:
“Energy Transfer LP (ET) rose over the period along with the price of oil climbing 40.59% over the period. The company received positive news that the Dakota Access Pipeline project would not be shut down while the Environmental Impact Statement by the US Army Corps of Engineers is drawn up. Energy Transfer reported strong 1Q results with revenue of $17B surpassing expectations for $11.8B with adjusted earnings before income, taxes, depreciation and amortization (EBITDA) hitting $5.04B ahead of consensus of $2.77B. The company raised full year adjusted EBITDA guidance to $12.9-13.3B from $10.6-11.0B previously, with the increase largely related to the benefits realized from Winter Storm Uri. The company paid down $3.7B in debt during the quarter, using strong cash flow to reduce leverage. The company also announced the issuance of $900M in 6.5% Series H perpetual preferreds with the company using the proceeds to repay debt and for general purposes.”
9. Phillips 66 (NYSE:PSX)
Number of Hedge Fund Holders: 38
Dividend Yield as of October 19: 4.00%
Phillips 66 (NYSE:PSX) is a Texas-based energy manufacturing and logistics company. It operates through four segments – Midstream, Chemicals, Refining, and Marketing and Specialties (M&S). On October 7, Phillips 66 (NYSE:PSX) declared a $0.97 per share quarterly dividend, in line with previous. The dividend is payable on December 1, to shareholders of record on November 17. Phillips 66 (NYSE:PSX)’s dividend yield on October 19 stood at 4%.
On October 6, Piper Sandler analyst Ryan Todd raised the price target on Phillips 66 (NYSE:PSX) to $116 from $113 and kept an Overweight rating on the shares. The analyst said refining “remains a brightspot” into the Q3 reporting season.
Among the hedge funds tracked by Insider Monkey, 38 funds reported owning stakes worth $1 billion in Phillips 66 (NYSE:PSX) at the end of June 2022, compared to 41 funds in the prior quarter worth $1.38 billion. D E Shaw is the biggest stakeholder of the company, with 3.4 million shares valued at $282 million.
Black Bear Value Partners released its Q3 2020 investor letter and mentioned Phillips 66 (NYSE:PSX). Here is what it said:
“PSX has been a top 5 position in years past. Its long-term value is similar to when we last owned it but is down 50+% in price in sympathy with broader energy concerns.
PSX is an integrated energy company with 4 central divisions: refining, chemicals, midstream (pipelines etc.) and marketing (gas stations). Due to downstream demand destruction, the refining business is taking it on the chin. This could persist for the remainder of 2020 and into 2021. As in years past, a lot of focus is given to the refining business as it has historically been the lion’s share of the value for PSX. Management has invested in the non-refining businesses who now make up most of the value of the company.
Management is extremely thoughtful with capital allocation and has focused on a healthy balance sheet with opportunistic share repurchases. They do not spend capex on projects unless they meet a healthy margin of safety for returns.
PSX should be able to generate substantial amounts of cash in the coming years and generate a 15+% free cash flow yield on quarter-end pricing. If the stock remains low, management will be buying a lot of stock.”
8. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 39
Dividend Yield as of October 19: 3.82%
Shell plc (NYSE:SHEL), a London-based energy and petrochemical company operating in Europe, Asia, Oceania, Africa, the United States, and the rest of the Americas, is one of the elite income stocks to consider. In a bid to expand its global renewables portfolio, Shell plc (NYSE:SHEL) announced on September 28 that it had entered the African power sector by purchasing the Nigerian renewable energy provider, Daystar Power, for an undisclosed sum.
JPMorgan analyst Christyan Malek on October 13 reiterated an Overweight rating on Shell plc (NYSE:SHEL) but trimmed the firm’s price target on the shares to 2,900 GBp from 3,000 GBp.
According to Insider Monkey’s Q2 data, 39 hedge funds were bullish on Shell plc (NYSE:SHEL), with collective stakes worth $3.4 billion, compared to 37 funds in the prior quarter worth $5.6 billion. Ken Fisher’s Fisher Asset Management is the leading position holder in the company, with 20.25 million shares valued at $1.06 billion.
Here is what Harding Loevner International Equity Fund has to say about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“While risks of unforeseen consequences arising from the Ukraine conflict are high, on this front we are cautiously optimistic that China will work hard to maintain its neutrality in a credible way, as it is a huge beneficiary of trade with the rest of the world, especially the rich developed nations. We think it likely that China, along with India, will continue to buy oil and gas from Russia (just as Europe, at least for now, plans to keep its gas pipelines open), and do not expect that fact to alter China’s trade relations with the West much. Nevertheless, we must contemplate that our optimism is misplaced on the importance of membership in the global network of exchange. If our central and optimistic case—admittedly an educated guess—is wrong, then we’d need to greatly modify our views of which companies in our opportunity set will face new barriers to profitable growth, and which might stand to benefit, relatively, from a further receding of globalization. (Global trade, after all, has never matched the peak share of GDP it reached in 2008, before the Global Financial Crisis.) We’d expect such a world to be less efficient, as the cold logic of comparative advantage is demoted as a determinant of which goods or services are produced and where. That would lead to a less prosperous world, since exploiting comparative advantage is a cornerstone of wealth creation. If regional blocs began to raise limits on the movement of capital as well as goods, we’d need to parse which of our multinational companies were at risk of declining sales from increasingly hostile, siloed countries. Royal Dutch Shell (NYSE:SHEL) has found its Siberian oil and gas joint venture assets stranded by the combination of sanctions and the public opprobrium of Russia’s actions.”
7. FirstEnergy Corp. (NYSE:FE)
Number of Hedge Fund Holders: 42
Dividend Yield as of October 19: 4.23%
FirstEnergy Corp. (NYSE:FE) generates, transmits, and distributes electricity in the United States. The company owns and operates coal-fired, nuclear, hydroelectric, natural gas, wind, and solar power generating facilities. On September 19, FirstEnergy Corp. (NYSE:FE) declared a quarterly dividend of $0.39 per share, in line with previous. The dividend is payable on December 1, to shareholders of record on November 7. FirstEnergy Corp. (NYSE:FE)’s dividend yield on October 19 came in at 4.23%.
On September 16, Morgan Stanley analyst Stephen Byrd maintained an Overweight rating and a $53 price target on FirstEnergy Corp. (NYSE:FE) shares. He said that he remains bullish on the stock with overhangs getting resolved and “several catalysts ahead for a re-rating”.
According to Insider Monkey’s second quarter database, 42 hedge funds were long FirstEnergy Corp. (NYSE:FE), up from 33 funds in the earlier quarter. Carl Icahn’s Icahn Capital LP is the leading stakeholder of the company, with approximately 19 million shares worth $728 million.
Here is what ClearBridge Investments Global Infrastructure Income Strategy has to say about FirstEnergy Corp. (NYSE:FE) in its Q4 2021 investor letter:
“On a regional level, the Strategy’s largest exposure is in the U.S. and Canada (44%), consisting of regulated and contracted utilities (31%) and economically sensitive user-pays infrastructure (13%).
During the quarter we initiated new positions in U.S. electric utility FirstEnergy. With supply chain issues, higher housing costs, higher commodity prices and producer price inflation remaining square in the sights for 2022, we think higher inflation is a risk for global markets. We expect growth to slow to trend or below by mid-2022 and U.S.”
6. Newmont Corporation (NYSE:NEM)
Number of Hedge Fund Holders: 56
Dividend Yield as of October 19: 5.43%
Newmont Corporation (NYSE:NEM) is a Colorado-based company that explores for gold, copper, silver, zinc, and lead. Newmont Corporation (NYSE:NEM) is one of the best income stocks to consider, given its dividend yield of 5.4% as of October 19. Newmont Corporation (NYSE:NEM)’s latest quarterly dividend of $0.55 per share was distributed to shareholders on September 22.
On October 13, National Bank analyst Mike Parkin maintained an Outperform rating on Newmont Corporation (NYSE:NEM) and raised the firm’s price target on the shares to C$80 from C$79.
According to Insider Monkey’s second quarter database, 56 hedge funds held stakes worth $2.9 billion in Newmont Corporation (NYSE:NEM), compared to 53 funds in the earlier quarter worth $3.5 billion. Jean-Marie Eveillard’s First Eagle Investment Management is one of the leading position holders in the company, with 17.50 million shares valued at more than $1 billion.
Like Citigroup Inc. (NYSE:C), Exxon Mobil Corporation (NYSE:XOM), and Philip Morris International Inc. (NYSE:PM), Newmont Corporation (NYSE:NEM) is one of the top dividend stocks to invest in.
Here is what First Eagle Investments Global Fund has to say about Newmont Corporation (NYSE:NEM) in its Q2 2022 investor letter:
“Shares of Colorado-based Newmont, the largest gold miner in the world, experienced weakness in the quarter as falling gold bullion prices and cost inflation hurt miners in general. More idiosyncratically, the company reported slightly disappointing earnings and production results for its most recent quarter due to pandemic-related disruptions, ongoing supply-chain constraints, and labor shortages.
It also warned that operating costs for 2022 were likely to come in at the upper end of previous guidance. We remain constructive on the stock, which offers steady production anchored in good jurisdictions, a good pipeline of organic projects, a strong balance sheet, and proven management.”
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Disclosure: None. 12 Best Income Stocks To Invest In is originally published on Insider Monkey.
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