The sustained sell-off surrounding equity markets has steered the S&P 500 index towards a bear market. Investors are rightfully wary about the double-whammy impacting companies, including rising interest rates and inflation.
To offset inflation, the Federal Reserve hiked interest rates by 0.75% earlier this week, the largest increase since 1994. Higher yields lead to higher borrowing costs for companies, which will compress profit margins. Further, inflation will negatively impact consumer demand due to rising commodity prices.
In this environment, you need to identify companies that enjoy pricing power while generating robust cash flows, to meet interest obligations. Here, we look at three such blue-chip companies that are easily outpacing the S&P 500 in 2022.
One of the largest companies in the world, Chevron (NYSE: CVX) is valued at a market cap of $305 billion. Due to rising oil prices, Chevron has returned 48% to investors in the last year and is up 35% in 2022. Despite its market-thumping gains, Chevron offers investors a forward yield of 3.7%.
Chevron is also part of Berkshire Hathaway's portfolio due to the company's ability to generate cash flows in good times and bad. In Q4, Berkshire Hathaway increased its position in Chevron by 120 million shares, and it now accounts for 7% of the financial giant's total portfolio.
Chevron is an integrated energy company with a diversified revenue base. It owns refineries, pipelines, and storage facilities that deliver stable cash flows across business cycles.
In Q1 of 2022, Chevron's adjusted earnings stood at $6.5 billion or $3.36 per share. Its free cash flow surpassed $6 billion for the third consecutive quarter allowing the company to return $4 billion to shareholders and lower its debt.
Another integrated energy player that has delivered outsized gains to investors in 2022 is Enbridge (NYSE: ENB). In the first six months of 2022, ENB stock has risen by 8.2%. Enbridge also offers investors a tasty dividend yield of 6.4%, making it extremely attractive to income-seeking investors.
Based out of Canada, Enbridge is among the largest pipeline companies in North America. Most of Enbridge's cash flows are backed by fee-based contracts making it relatively immune to commodity prices.
While oil prices plunged in 2020, several oil producers suspended or cut dividends. However, Enbridge managed to increase distributable cash flows by 2% compared to 2019. Moreover, its solid business model has allowed Enbridge to increase dividends for 27 consecutive years.
Enbridge generates 84% of its EBITDA from its pipeline business, while its natural gas utility segment accounts for 12%, followed by a growing clean energy vertical that accounts for 4% of EBITDA.
The final blue-chip stock on my list is Brookfield Infrastructure Partners (NYSE: BIP). Shares of BIP have risen by 10% since June 2021, after adjusting for dividends. Brookfield Infrastructure Partners offers investors a forward yield of 3.62%, and the company has increased dividend payouts at an annual rate of 10% in the last 10 years.
BIP is one of the most well-diversified companies in the world and owns a wide range of infrastructure assets such as data centers, railroads, cellular towers and natural gas pipelines.
Further, 90% of its cash flows are contracted and 70% are indexed to inflation, making BIP a top stock right now.
Analysts remain optimistic on BIP stock and expect it to rise by 55% in the next 12 months.
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