Robust inflation and with it the expectation of aggressive central bank interest rate increases have soured investor sentiment. Furthermore, because of the war between Ukraine and Russia, which has already caused more serious logistical damage than was expected, the stock market is expected to remain under pressure in the near term. Danielle DiMartino Booth, CEO of Quill Intelligence, said, "The expected rate hike on Wednesday comes at a tricky time, as we are currently facing a slowing economy teetering on the brink of a recession and rampant energy and food inflation.” However, hopes of an economic rebound still exist as worldwide COVID-19 restrictions continue to ease.

Amid this scenario, we think investors should invest in quality stocks with good track records of past dividend payouts to ensure a steady income stream. Investors’ interest in this space is evidenced by the Global X S&P 500 Quality Dividend ETF’s (QDIV) 2.2% returns over the past three months compared to the SPDR S&P 500 Trust ETF’s (SPY) 10% decline.

We think strong fundamentals and impressive dividend payout history make SAP SE (SAP) and United Microelectronics Corporation (UMC) wise bets for now. They are both down more than 20% in price year-to-date but have the potential to rebound soon. Also, they are A (Strong Buy) rated in our POWR Ratings system.

SAP SE (SAP)

Headquartered in Walldorf, Germany, SAP operates worldwide as an enterprise application software company. The company operates through four segments: Applications- Technology & Support; Concur; Qualtrics; and Services. 

On Jan. 27, 2022, Christian Klein, CEO, said, “The magnitude of our cloud strength is evident. More and more companies are choosing SAP to help them transform their businesses, build resilient supply chains and become sustainable enterprises as they move to the cloud. This momentum is reflected in the tremendous success of “RISE with SAP,” our signature cloud offering, as well as excellent growth across our entire portfolio.”

SAP’s dividend payouts have grown at an 11.6% CAGR over the past five years. Its four-year average yield is 1.42%, while its current dividend yields 2.05%. On Feb. 24, 2022, the supervisory and executive board of SAP recommended that shareholders approve a dividend of €2.45 per share for 2021.

For its fourth quarter, ended Dec. 31, 2021, SAP’s total revenue increased 5.9% year-over-year to €7.98 billion ($8.66 billion). The company’s gross profit came in at €5.82 billion ($6.32 billion), up 3.3% year-over-year. Also, its cash and cash equivalents were €8.90 billion ($9.66 billion) for the period ended Dec. 31, 2021, compared to €5.31 billion ($5.77 billion) for the period ended Dec.31, 2020.

Analysts expect SAP’s revenue to be $34.55 billion in its fiscal year 2023, representing a 6.8% year-over-year increase. The company’s EPS is expected to rise 11.7% to $6.40 for fiscal 2023. In addition, it has surpassed the consensus EPS estimates in each of the trailing four quarters. The stock declined 21.5% in price year-to-date to close yesterday’s trading session at $110.05.

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

SAP has a B grade for Value, Stability, Sentiment, and Quality. It is ranked #4 out of 163 stocks within the Software - Application industry. Click here to see the additional POWR Ratings for Growth and Momentum for SAP.

Click here to check out our Software Industry Report for 2022

United Microelectronics Corporation (UMC)

Headquartered in Hsinchu City, Taiwan, UMC is a semiconductor wafer foundry in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. It operates through Wafer Fabrication and New Business segments. 

On Jan. 25, 2022, Jason Wang, UMC’s co-president, said, “Looking ahead into Q1 2022, we anticipate that demand across all nodes in UMC’s addressable markets will continue to outpace supply. Our growth in the long term is supported by industry megatrends, which will be catapulted by structural changes occurring in the industry.”

Over the last three years, UMC’s dividend payouts have grown at a 35.1% CAGR. While UMC's four-year average dividend yields 3.61%, its current dividend translates to a 3.27% yield.

UMC’s operating revenues came in at $2.14 billion for the fourth quarter, ended Dec. 31, 2021, up 30.5% year-over-year. Its net income came in at $578 million, up 46.7% year-over-year, while its EPS came in at $0.24, up 41.6% year-over-year.

Analysts expect UMC’s revenue to be $9.39 billion in its fiscal year 2022, representing a 22% year-over-year rise. Also, the company’s EPS is expected to increase 34.1% per annum for the next five years. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock declined 25.1% in price year-to-date to close yesterday’s session at $8.76.

UMC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system.

UMC has a B grade for Growth, Value, Momentum, and Quality. It is ranked #2 of 97 stocks in the B-rated Semiconductor & Wireless Chip industry. Click here to see the additional ratings for UMC (Stability and Sentiment).

Click here to checkout our Semiconductor Industry Report for 2022

SAP shares were trading at $110.75 per share on Tuesday morning, up $0.70 (+0.64%). Year-to-date, SAP has declined -20.95%, versus a -11.53% rise in the benchmark S&P 500 index during the same period.

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.

More...