If anything can stir arguments among economists, it is probably consumer and producer price index numbers, and with good reason. Rising prices can signal the start of an inflationary period for an economy, and even moderate inflation can rapidly erode purchasing power and create uncertainty as businesses have more difficulty estimating future costs.
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The October 2021 Consumer Price Index rose 0.9% over the past year on a seasonally adjusted basis and 6.2% not seasonally adjusted. The all-items index increased 6.2% before the seasonal adjustment. Add in the dreadful Producer Price Index numbers earlier in the week (measuring wholesale prices, which rose 0.6% in October and translated into an 8.6% increase year over year, the highest annual pace in records going back nearly 11 years) and you have a very troubling outlook.
Inflation on an overall basis is at the highest level in almost 30 years. Despite assurances from the Treasury Secretary, the Federal Reserve and others that this onslaught of higher prices will cool next year, with prices skyrocketing on every level, those in Washington are starting to feel the heat from their constituents back home.
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Needless to say, traders and investors noted the massive increases and in turn began selling stock. We thought screening the Dividend Aristocrats for companies that can survive a bout of inflation made sense. Often when income investors look for companies paying big dividends, they are drawn to the Dividend Aristocrats. The 65 companies that made the cut for the 2021 list have increased dividends (not just remained the same) for 25 years straight. But the requirements go even further, with the following attributes also mandatory for membership on the list:
- Companies must be worth at least $3 billion at the time of each quarterly rebalancing.
- They must have an average daily volume of 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 at some of the lowest levels this year, we thought it would be a good idea to look for Dividend Aristocrats that are in sectors that are considered defensive in nature. That typically means consumer staples, utilities and real estate investment trusts (REITs).
These five stocks look like solid ideas now, and all are Buy rated at top 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.
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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.
Atmos Energy’s 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.
Atmos Energy stock investors receive a 2.64% dividend. Morgan Stanley and recently raised its target price to $119, well above the $107.56 consensus target and Thursday’s close at $94.77 a share.
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Coca-Cola
This 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 | KO Price Prediction) 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 2.96% dividend. The BofA Securities price target for Coca-Cola stock is $64, while the consensus target is $62.10. Shares closed on Thursday at $56.74.
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Colgate-Palmolive
This top dividend payer also is a very safe play for investors. Colgate-Palmolive Co. (NYSE: CL) continues to deliver solid execution and is one of the best-positioned companies in its sector, given its strong brands in attractive categories, particularly oral care. Colgate also was one of the most valuable brands in the world.
Over half of Colgate’s total revenues (52%) are derived in faster-growth emerging economies, and the company maintains leading or near-leading market shares across Brazil, Russia, India and China. While those have slowed over the last year, a pickup in growth could be coming, especially with a very weak dollar making products attractive overseas.
The dividend yield is 2.31%. Deutsche Bank has an $86 price target, and the consensus target is $84.45. Colgate-Palmolive stock closed at $77.99 on Thursday.
Essex Property Trust
This is an outstanding way for investors looking to add a real estate position to growth and income portfolios. Essex Property Trust Inc. (NYSE: ESS), an S&P 500 company, is a fully integrated REIT that acquires, develops, redevelops and manages multifamily residential properties in selected west coast markets. Essex currently has ownership interests in 244 apartment communities comprising approximately 60,000 apartment homes with an additional six properties in various stages of active development.
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The company reported strong third-quarter 2021 core funds from operations that not only beat the consensus estimate but surpassed the higher end of the company’s guided range. Results reflect improving net effective rent growth in the quarter. The company also raised the full-year 2021 guidance. Total revenues also exceeded the consensus forecast.
Shareholders receive a 2.43% dividend. The $381 Evercore ISI price target compares with the $350.52 consensus target for Essex Property Trust stock. Thursday’s closing price was $344.17 a share.
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Kimberly-Clark
This consumer staples leader is a safe bet for nervous investors. Kimberly-Clark Corp. (NYSE: KMB) is a manufacturer of tissue, personal care, and health care products. Global brands include Huggies, Kotex, Kleenex, Cottonelle, Viva, Scott, Depend and Poise, as well as Andrex in the United Kingdom.
Earlier this year, the company notified U.S. and Canadian customers about plans to increase net selling prices for most of its North American consumer products business. The percentage increase in prices will be in mid-to-high single digits. Almost all the price increases came into effect by the end of June via changes in list prices. In addition, Kimberly-Clark’s baby and child care, adult care and Scott bathroom tissue businesses are affected by this move.
The company also raised the dividend in March by 6.5% to $1.14 per share. Investors now receive a 3.40% dividend. Jefferies has set a $146 price objective on Kimberly-Clark stock. The consensus target is $131.37, and shares stock closed on Thursday at $134.02.
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Keep in mind, just because they are Dividend Aristocrats now doesn’t mean one of these companies won’t be forced to reduce its dividend in the future. With that caveat in place, there is a very good chance that these all will be on the list in 2022, and these top companies are great ideas for growth and income investors with a degree of risk tolerance to move to with rates still at generational lows.
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