While the market rebounded smartly from the late September selling spree, where we finally reached a 5% decline after nearly a year without one, storm clouds are on the horizon once again. The massive back and forth swings in the market this week may be a harbinger of some tough sledding over the balance of October, which is typically one of the weakest and most volatile months of the trading year. Inflation and supply chain concerns are dominating headlines, and while the debt ceiling battle has been kicked down the road to December, the issue continues to be an ugly negative.
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Now is the time to reduce risk and more to safer ideas. Often when more conservative income investors look for companies paying big dividends, they are drawn to the Dividend Aristocrats, and with good reason. The 65 companies that made the cut for the 2021 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. But the requirements go even further. The following attributes also are mandatory for membership on the list:

• Companies must be worth at least $3 billion at the time of each quarterly rebalancing.
• The average daily volume must be at least $5 million in transactions for every trailing three-month period at every quarterly rebalancing date.

With the potential for a sizable correction looming and interest rates still close generational lows, we thought it would be a good idea to look for companies on the Dividend Aristocrats list that are in sectors that are considered defensive in nature. That typically means consumer staples, utilities and real estate investment trusts (REITs).

Five Dividend Aristocrats stocks that fit the defensive arena look like solid ideas now, and all are Buy rated at major Wall Street firms. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Atmos Energy

This utility stock is perfect for conservative investors looking for income. Atmos Energy Corp. (NYSE: ATO) engages in the regulated natural gas distribution and pipeline and storage businesses in the United States. It operates in two segments.

The Distribution segment is involved in the regulated natural gas distribution and related sales operations in eight states. This segment distributes natural gas to approximately 3 million residential, commercial, public authority and industrial customers. As of September 30, 2020, it owned 71,558 miles of underground distribution and transmission mains.

The Pipeline and Storage segment engages in the pipeline and storage operations. This segment transports natural gas for third parties and manages five underground storage reservoirs in Texas. It also provides ancillary services to the pipeline industry, including parking arrangements, lending and inventory sales. As of September 30, 2020, it owned 5,684 miles of gas transmission lines.

Investors receive 2.80% dividend. Morgan Stanley recently lowered its $125 target price to $123. The consensus target is $110, and Thursday’s closing print was $89.76 a share.

The stock was a big winner during the initial stages of the pandemic but has sold off big-time and is offering the best entry point in over a year. Clorox Co. (NYSE: CLX) manufactures and markets consumer and professional products worldwide.
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The Health and Wellness segment offers cleaning products, such as laundry additives and home care products primarily under the Clorox, Clorox2, Scentiva, Pine-Sol, Liquid-Plumr, Tilex and Formula 409 brand names. It offers professional cleaning and disinfecting products under the CloroxPro, Clorox Healthcare and Clorox Total 360 brand names; professional foodservice products under the Hidden Valley brand name; and vitamins, minerals and supplement products under the RenewLife, Natural Vitality, NeoCell and Rainbow Light brand names in the United States.

The Household segment provides cat litter products under the Fresh Step, Scoop Away and Ever Clean brand names; bags and wraps under the Glad brand name; and grilling products under the Kingsford and Kingsford Match Light brand names in the United States. The Lifestyle segment offers dressings, dips, seasonings and sauces, primarily under the Hidden Valley brand name. Its natural personal care products are under the Burt’s Bees brand name, and its water-filtration systems and filters are under the Brita brand name in the United States.

The International segment provides laundry additives; home care products; water-filtration systems and filters; digestive health products; grilling products; cat litter products; food products; bags and wraps; natural personal care products; and professional cleaning and disinfecting products internationally, primarily under the Clorox, Ayudin, Clorinda, Poett, Pine-Sol, Glad, Brita, RenewLife, Ever Clean and Burt’s Bees brand names.

Investors receive a 2.81% dividend. Citigroup has a $193 price target on Clorox stock. The consensus target is much lower at $161.53, and shares closed on Thursday at $165.06.

Federal Realty Investment Trust

While real estate has come back strongly from the lows last year, demand is still growing. Federal Realty Investment Trust (NYSE: FRT) is a recognized leader in the ownership, operation and redevelopment of high-quality retail based properties located primarily in major coastal markets from Washington, D.C., to Boston, as well as San Francisco and Los Angeles.

Founded in 1962, Federal Realty’s mission is to deliver long-term, sustainable growth through investing in densely populated, affluent communities where retail demand exceeds supply. Its expertise includes creating urban, mixed-use neighborhoods like Santana Row in San Jose, California, Pike & Rose in North Bethesda, Maryland, and Assembly Row in Somerville, Massachusetts.

Federal Realty’s 105 properties include approximately 3,000 tenants in 24 million square feet and over 2,600 residential units. Federal Realty has increased its quarterly dividends to its shareholders for 51 consecutive years, the longest record in the real estate investment trust industry.

Unitholders receive a 3.52% distribution. The Deutsche Bank price target of $140 is well above the $91.60 consensus figure. The shares closed at $121.71 on Thursday.

McDonald’s

The fast-food giant continues to revamp both its stores and its menu, and it is a solid pick for investors who are more conservative. McDonald’s Corp. (NYSE: MCD) is the world’s leading global food-service retailer with over 39,000 locations serving approximately 69 million customers in over 100 countries each day. More than 80% of McDonald’s restaurants worldwide are owned and operated by independent local businesspersons.
The company has built a product pipeline, including a new chicken sandwich, a McPlant line and follow-on celebrity promos. Baird feels the key driver of the McDonald’s story will shift to a technology scale that competitors will struggle to replicate. This tech evolution is supporting a wave of consolidation, while it creates pressure on small and mid-tier players.
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In addition, many on Wall Street believe that McDonald’s will benefit broadly from economic reopenings in 2021, and the company’s investments in technology, a renewed marketing strategy, loyalty and menu innovation will drive share gains in the industry.

Holders of McDonald’s stock receive a 2.23% dividend. Loop Capital started coverage this week and has a huge $306 target price. The consensus price objective is $265.59, and the stock closed on Thursday at $248.32.

PepsiCo

This top consumer staples pick will be supplying the goods for tailgating and football watch parties around the country all season long. PepsiCo Inc. (NYSE: PEP) operates as a food and beverage company worldwide. Its Frito-Lay North America segment offers Lay’s and Ruffles potato chips; Doritos, Tostitos and Santitas tortilla chips; and Cheetos cheese-flavored snacks, branded dips and Fritos corn chips.

The Quaker Foods North America segment provides Quaker oatmeal, grits, rice cakes, natural granola and oat squares, as well as the recently name-changed Aunt Jemima mixes and syrups, and Quaker Chewy granola bars, Cap’n Crunch cereal, Life cereal and Rice-A-Roni side dishes.

PepsiCo’s North America Beverages segment offers beverage concentrates, fountain syrups and finished goods under the Pepsi, Gatorade, Mountain Dew, Diet Pepsi, Aquafina, Tropicana Pure Premium, Sierra Mist and Mug brands, as well as ready-to-drink tea and coffee, and juices.

Shareholders receive a 2.77% dividend. Goldman Sachs has set its price target at $170, while the consensus target on PepsiCo stock is $165.55. Shares closed on Thursday at $156.39.

Walgreens

This huge drugstore chain is a safe retail play for investors now. Walgreens Boots Alliance Inc. (NASDAQ: WBA) operates as a pharmacy-led health and beauty retail company. It operates through three segments.

The Retail Pharmacy USA segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores. It also provides specialty pharmacy services and mail services; this segment operates nearly 10,000 retail stores under the Walgreens and Duane Reade brands in the United States; and six specialty pharmacies.

The Retail Pharmacy International segment sells prescription drugs; and health and wellness, beauty, personal care, and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as through boots.com and an integrated mobile application. This segment operated 4,428 retail stores under the Boots, Benavides, and Ahumada in the United Kingdom, Thailand, Norway, the Republic of Ireland, the Netherlands, Mexico, and Chile; and 550 optical practices, including 165 on a franchise basis.

The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home health care supplies and equipment, as well as provides related services to pharmacies and other health care providers.

Investors receive a 4.07% dividend. The $68 Baird price target compares with the consensus target of $51.62. Walgreens Boots Alliance stock closed on Thursday at $47.85 a share.

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All five stocks have reasonable upside to the Wall Street targets, and they all pay very dependable dividends, given their Dividend Aristocrat status. With even moderate appreciation in the share prices of these top companies, investors should be looking at double-digit total return potential. In a market that is very long in the tooth, that makes a ton of sense now.

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