The market’s rebound last year led me to tap the brakes on new investments to start building up more cash in case the market took a breather. I sold a few losing positions while allowing my dividends and cash transfers to accumulate so that my cash position is now more than 5% of my portfolio’s value.

I plan to put some of that cash stockpile to work in the coming weeks now that the market has cooled off to start 2024. Chevron (CVX), Kenvue (KVUE), and VICI Properties (VICI) are among the first three stocks I plan to buy. Here’s why they’re at the top of my buy list.

The fuel to grow

Chevron is coming off a down year. The oil giant’s stock has fallen about 20% over the last 12 months, weighed down by oil prices and its pending acquisition of rival Hess. However, that sell-off has Chevron trading at an attractive dividend yield (4.2%) and value (given the growth it can deliver at lower oil prices).

Chevron has been laser-focused on improving its investment returns by concentrating capital spending on its highest-return opportunities. That positions the oil company to grow its cash flow at a healthy rate over the coming years, even in a downside scenario where oil prices average $60 a barrel through 2027 (and fall to $50 in the latter years of its forecast).

Even in that event, Chevron can deliver more than 10% annual free cash flow growth over the next several years. That supports the company’s view that it can continue increasing its dividend while repurchasing shares at the low end of its $10 billion to $20 billion annual target range.

Meanwhile, Chevron has significant upside potential if oil prices average $70 a barrel (around the current price point) and it completes its needle-moving acquisition of Hess. Those factors would give Chevron the fuel to more than double its free cash flow by 2027 while extending its production growth outlook into the 2030s. That would supply the oil giant more cash to return to shareholders and invest in growing its lower-carbon energy businesses. It could also give it the fuel to produce strong total returns.

A healthy future

Kenvue’s stock has stumbled following its IPO and separation from healthcare giant Johnson & Johnson. Shares are down more than 20% since it came public, driving its dividend yield up to 3.8%. That’s largely due to turnover among shareholders.

The company has otherwise gotten off to a healthy start as an independent public company. In the third quarter, it reported $3.9 billion in sales, a 3.3% year-over-year increase. It also posted strong profitability. The company expects sales to rise by 4% to 4.5% for the year.

Kenvue is producing healthy cash flow, which allowed it to initiate a dividend and launch a share repurchase program. The company’s growing sales, profits, and cash flow should enable it to follow in the footsteps of its former parent and steadily increase its dividend in the future. That growth should help drive the stock price higher over the future, which should enable Kenvue to deliver healthy total returns.

A fast-growing REIT

VICI Properties’ stock price has slumped about 7% over the past year. That decline has pushed the real estate investment trust’s (REIT) dividend yield up to 5.4%.

While its share price is down, the experiential property owner is growing briskly. Its revenue surged 20% year-over-year in the third quarter, while its adjusted funds from operations (FFO) were up by nearly 11% per share. VICI is benefiting from rising rental rates and an ever-expanding portfolio. With earnings growing while its stock price has fallen, VICI has gotten a lot cheaper over the past year.

The REIT continues to make new investments to drive growth. Over the past few months, VICI has acquired 38 bowling entertainment centers from Bowlero in a $432.9 million sale-leaseback transaction, agreed to provide up to $212 million in construction financing to Kalahari for an indoor waterpark resort development, and has expanded its investments with Chelsea Piers and Cabot to nearly $550 million. These investments will grow its income in the future, giving the REIT more cash flow to increase its dividend. That combination of growth and income should enable it to produce exciting total returns in the coming years.

Seeking to cash in on their strong total return potential
Chevron, Kenvue, and VICI Properties have underperformed in recent months. However, they should generate attractive and growing dividend income in the future with the potential to produce strong total returns over the long term as they increase their earnings and their stock prices recover. They look like very attractive places to start deploying my cash stockpile.

— Matthew DiLallo

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Source: The Motley Fool