The 2020 S&P 500 Dividend Aristocrats list includes 66 companies that have increased dividends (not just remained the same) for 25 years straight. Keep in mind, just because they are on this list now doesn’t mean that in the future they will not reduce their dividend.
Despite the continued rally from the March lows, many investors, both institutional and retail, remain very fearful of another leg back down. The huge amount of cash in money market funds seems to supports this. Top fund managers cite the potential for another outbreak of the coronavirus, while others remain concerned over the destruction of the economy and conditions that weary consumers may still have to face.
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We screened the 2020 Dividend Aristocrat list for stocks rated Buy in the BofA Securities research universe, and we found five that looked solid and safe for nervous investors.
AT&T
This is a top telecom and entertainment play. AT&T Inc. (NYSE: T | T Price Prediction) is the largest U.S. telecom company and provides wireless and wireline service to retail, enterprise and wholesale customers. The company’s wireless network serves approximately 124 million mobile connections, with 77 million postpaid subscribers.
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While AT&T’s traditional wireline voice business has undergone a period of secular decline due to wireless substitution and cable competition, the company through WarnerMedia has become a diversified media and entertainment business.
The company said this week it will immediately abandon Venezuela’s pay-TV market as U.S. sanctions prohibit its DirecTV platform from broadcasting channels that it is required to carry by the socialist administration of Nicolas Maduro. AT&T is the largest player in Venezuela’s pay-TV market and was one of the last major American companies still operating in the crisis-wracked country.
Investors receive a 7.18% dividend. BofA Securities has a $36 price target for the shares, while the Wall Street consensus target is $33.88. AT&T stock closed trading on Tuesday at $28.96 per share.
Coca-Cola
This company remains a top Warren Buffet holding and offers not only safety but also an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands.
Led by Coca-Cola, one of the world’s most valuable brands, the company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.
Investors receive a solid 3.68% dividend. BofA Securities has set its price target at $53. The posted consensus target price is $52 and Coca-Cola closed trading at $44.54 on Tuesday.
Exxon Mobil
This is another safer long-term play for conservative investors, and the energy giant is trading at 17-year lows. 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.
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Earlier this year Exxon announced plans for spending cuts amid the coronavirus outbreak that caused a price slide significantly aggravated by Saudi Arabia’s decision to start raising oil production. Exxon’s budget for this year and every year until 2025 was set at between $30 billion and $35 billion. Many on Wall Street feel that could be cut 10% to 20% or more. Note that Exxon has one of the highest paid American CEOs.
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The analysts remain very positive and said this when Exxon reported:
Despite some confusion on the company’s reported earnings, we contend that on a peer to peer comparison the first quarter is a clean beat versus the street. COVID-19 is the great equalizer. All majors will lean on the balance sheets, but Exxon can reduce spending as needed with growth in the recovery. The second quarter promises more sticker shock but Exxon’s yield pays investors to wait through this downturn with growth beyond.
The company pays investors a huge 7.92% dividend, which probably will be defended. The $70 BofA Securities price objective compares with the $47.27 consensus estimate. Exxon Mobile stock closed most recently at $43.94.
General Dynamics
This company, like other major defense prime contractors, continues to offer investors some safety and long-term potential. General Dynamics Corp. (NYSE: GD) is engaged in business aviation, land and expeditionary combat vehicles and systems, armaments, munitions, shipbuilding and marine systems, and information systems and technologies.
Major products include Virginia-class nuclear-powered submarine and Ohio class replacement, Arleigh Burke-class Aegis, Abrams M1A2 tank, Stryker eight-wheeled assault vehicle, medium-caliber munitions and gun systems, tactical and strategic mission systems.
The analysts recently made some changes to earnings projections and noted why in a research report:
We lowered our price objective and earnings per share estimates for the company on lower Gulfstream outlook, due to market pressures on business jet demand. While we continue to see business jet market pressure in 2020, we recognize that our previous estimates may have been too bearish. We reiterate our Buy rating (based on 5.7% free cash flow yield on 2021 estimated), as we continue to view Defense as defensive.
Investors receive a 3.23% dividend. The BofA Securities price target is $175. The consensus target is $173.67, and General Dynamics stock closed at $136.19.
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Johnson & Johnson
With a diverse product base and a very popular and solid brand, this is among the most conservative big pharmaceutical plays. Johnson & Johnson (NYSE: JNJ) is one of the top market cap stocks in the health care sector and will raise the dividend for shareholders this year for the 57th consecutive year.
With everything from medical devices to over-the-counter health items and prescription drugs, Johnson & Johnson remains one of the most diversified health care names on Wall Street. It is also among the top companies helping Americans to fight the COVID-19 pandemic.
The health care giant also has one of the most exciting pipelines of new drugs in the sector. That combined with the solid over-the-counter product business makes the stock an outstanding holding for conservative accounts with a long-term investment outlook. The company generates a little over half of its sales in international markets, which are expected to see higher spending on health care over the next 10 years and beyond.
The dividend recently was raised to $1.01 per share from $0.95, which equals a 2.71% yield. The BofA Securities price target is $175. The consensus target is $164.17, and Johnson & Johnson stock closed at $149.02 on Tuesday.
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These five very conservative Dividend Aristocrat members are solid stocks to be in now for investors concerned about another leg back down. It is important to remember that while the rally off the lows has been impressive, the economy remains shutdown to a large degree, with most expecting horrific second-quarter results. These five companies may offer some shelter from the storm if we head south again.
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