It is hard to believe, but 2021 will end in just a little over a week. Many investors will be reviewing their portfolios and making changes for 2022. With the Federal Reserve laying out its plans for interest rate increases, including three now expected for both 2022 and 2023, and a doubling of the tapering of the quantitative easing program to $30 billion per month, many feel Wall Street now knows what to expect going forward. Top strategists noted last week that the Fed meeting removed a key overhang on a market that had been positioned defensively, perhaps expecting an even more hawkish tone.

It makes sense now to move from the momentum and meme stocks to more conservative large cap stocks that pay dividends. With all the major indexes up 20% and more year to date, and the median price to earnings for the S&P 500 at the highest level since the dot-com collapse in 1999 and 2000, something has to give. So moving to mega-cap dividend stocks may very well be the best total return strategy for next year, especially with most Wall Street strategists calling for just single-digit percentage gains.

We screened the Dow Jones industrial average looking for the highest yielding companies, and all were in more defensive sectors, or in the case of one top company, very undervalued. All their stocks are rated Buy at major Wall Street firms, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Dow

This stock certainly offers investors growth and income potential. Dow Inc. (NYSE: DOW) is a leading materials science company and was formed from the merger of Dow and DuPont in 2017 and the subsequent spin-off 2019. The company is organized into three principal divisions: Performance Materials & Coatings (23% of EBITDA), Industrial Intermediates & Infrastructure (27%) and Packaging & Specialty Plastics (51%).

Dow’s segments include Agricultural Sciences, which is engaged in providing crop protection and seed/plant biotechnology products and technologies, urban pest management solutions and healthy oils. The Consumer Solutions segment consists of Consumer Care, Dow Automotive Systems, Dow Electronic Materials and Consumer Solutions-Silicones businesses.

The Infrastructure Solutions segment consists of Dow Building & Construction, Dow Coating Materials, Energy & Water Solutions, Performance Monomers and Infrastructure Solutions-Silicones businesses. Performance Materials & Chemicals consists of Chlor-Alkali and Vinyl, Industrial Solutions and Polyurethanes businesses. The Performance Plastics unit consists of Dow Elastomers, Dow Electrical and Telecommunications, Dow Packaging and Specialty Plastics, Energy and Hydrocarbons businesses.

Investors receive a 5.23% dividend. Piper Sandler’s $78 price objective on Dow stock is well above the $65.43 consensus target price and Tuesday’s close of $54.20 a share.

Shares of this mega-cap energy leader backed up nicely as oil sold off recently, and they still offer investors an excellent entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

The company announced last month that ExxonMobil Catalysts and licensing has introduced ExxonMobil Renewable Diesel (EMRD) process technology to help meet the evolving needs for mobility, while utilizing renewable feedstock. This new process technology converts feedstocks including, but not limited to, vegetable oils, unconverted cooking oil and animal fats, into renewable diesel. Due to significant interest in producing renewable jet fuel as a primary product, Exxon is also developing advanced catalyst and process technology solutions that will offer EMRD process licensees flexibility to tailor the amount of jet fuel versus diesel produced.

The company pays a 5.95% dividend, which will continue to be defended. BofA Securities has a $95 price target, while the consensus target is just $72.25. Exxon Mobil stock closed trading on Tuesday at $60.50.

IBM

This blue-chip giant still offers investors an incredibly solid entry point. International Business Machines Corp. (NYSE: IBM) is a leading provider of enterprise solutions, offering a broad portfolio of information technology (IT) hardware, business and IT services, and a full suite of software solutions. The company integrates its hardware products with its software and services offerings in order to provide high-value solutions.

Analysts have cited the company’s potential in the public cloud as a reason for a positive outlook going forward, and the cloud has proved to be big in past earnings reports.

IBM stock investors are treated to a large 5.16% dividend. The Credit Suisse price target is $172. The lower $145.70 consensus target is closer to Tuesday’s closing share price of $128.97.

Verizon

Shares of this top telecommunications company offer tremendous value at current levels. Verizon Communications Inc. (NYSE: VZ) is one of the largest U.S. telecom companies. It provides wireless and wireline service to retail, enterprise and wholesale customers.
Verizon’s wireless network serves approximately 120 million mobile connections with 115 million postpaid subscribers. Its wireline business has undergone a period of secular decline due to wireless substitution and cable competition.

Verizon also provides converged communications, information and entertainment services over America’s most advanced fiber-optic network, and it delivers integrated business solutions to customers worldwide.

Investors receive a 4.82% dividend. The $71 Cowen price target compares with a $60.36 consensus target for Verizon Communications stock. Shares ended Tuesday’s trading session at $52.78.

Walgreens

This huge drugstore chain operator is a safe retail play for investors looking to add health care now. Walgreens Boots Alliance Inc. (NASDAQ: WBA) operates as a pharmacy-led health and beauty retail company. It operates through three segments.

The Retail Pharmacy USA segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores. It also provides specialty pharmacy services and mail services; this segment operates nearly 10,000 retail stores under the Walgreens and Duane Reade brands in the United States; and six specialty pharmacies.

The Retail Pharmacy International segment sells prescription drugs and health and wellness, beauty, personal care and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as online and an integrated mobile application. This segment operated 4,428 retail stores under the Boots, Benavides and Ahumada in the United Kingdom, Thailand, Norway, the Netherlands, Mexico and elsewhere, and 550 optical practices, including 165 on a franchise basis.

The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home health care supplies and equipment, as well as provides related services to pharmacies and other health care providers.

The dividend yield is 3.91%. Baird has set a $68 price target on Walgreens Boots Alliance stock. The consensus target is $52.58. The shares were last seen on Tuesday at $49.96 apiece.

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Technically Chevron is one of the five highest-yielding in the venerable index, but we wanted to cover five different sectors with only one stock that all look like great ideas for 2022, and these five outstanding blue-chip companies that have all traded down some this year are offering growth and income investors incredible entry points and some big, and most importantly reliable dividends.

For those versed in options trading, these all offer some nice premiums for covered call writing, which also can increase the total return potential, especially for those with a long-term investment horizon.

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