Worries over high inflation, continued supply chain issues, the war in Ukraine, and recently reimposed COVID-related lockdowns throughout China have all played their part in spooking financial markets this year. The fear is that these events together could result in a recession, which is why the S&P 500 index has dipped 18.3% year to date.
If the economy does dip into recession and the market continues its drop, there are still stocks out there handling the situation well and generating enough excess income to fund dividends that can get an investor through tough times. Let's look at two dividend-paying stocks providing steady, growing passive income that are being underestimated by Wall Street.
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1. T. Rowe Price
With $1.42 trillion in assets under management (AUM) as of April 30, T. Rowe Price (TROW -2.40%) is one of the largest asset managers in the world. Most of the company's revenue is based on its AUM, which is how it assesses investment advisory fees. Unsurprisingly, T. Rowe Price has been adversely impacted by the sell-off in stocks this year -- with its own stock price plunging 38.5% year to date.
But the good news is that climbing corporate profits tend to lift stocks -- and their share prices -- over time. This is why analysts expect T. Rowe Price to deliver 12.2% annual non-GAAP (adjusted) diluted earnings-per-share (EPS) growth through the next five years.
And given that T. Rowe Price's dividend payout ratio is expected to be 45.4% in 2022, low-double-digit dividend increases should continue over the next several years. This is especially impressive considering the stock's 3.7% dividend yield trounces the S&P 500's 1.5% yield.
Best of all, T. Rowe Price appears to be trading at a bargain valuation at the current share price. That's because, for one, T. Rowe Price's forward price-to-earnings ratio of 11.5 is moderately lower than the S&P 500 financial sector average of 13. And T. Rowe Price's trailing-12-month price-to-sales ratio of 3.6 is at a 10-year low, well below the 10-year median of 5.4. Simply put, T. Rowe Price is a quality stock that's currently on sale.
2. Aflac
With a $36 billion market capitalization and more than 50 million customers around the world, Aflac (AFL 0.90%) is among the largest insurance companies worldwide. Insurance is one of the most lucrative industries out there. Because customers want protection from negative events like accidents or being diagnosed with cancer, they pay Aflac insurance premiums to assume this risk. The company can earn a profit by carefully underwriting its insurance policies to make sure that claims paid are less than the premiums it has collected.
And since there is often a significant lag between when a customer begins paying premiums and files a claim, Aflac has built up a massive $132.6 billion investment portfolio. With interest rates set to significantly rise moving forward, this should boost the company's investment income.
This explains why analysts think Aflac will deliver a 4% annual earnings growth over the next five years. With the dividend payout ratio expected to be 30.7% in 2022, the stock has room to grow its dividend ahead of earnings for the foreseeable future.
This is why I believe Aflac will hand out high-single-digit annual dividend increases over the next several years. Paired with the stock's 2.8% dividend yield, this is a nice combination of starting income and growth prospects.
Finally, Aflac looks like a good value at the current share price. This is because the stock's forward P/E ratio of 10.7 is below the S&P 500 financial sector average of 13.
