It is hard to believe 2021 is all but over and 2022 is upon us. The Santa Claus rally has carried the S&P 500 back to new all-time highs and everything seems set up for a strong January. The reality is that five stocks have accounted for the bulk of the gains in the venerable index, and median price to earnings multiples are at the highest levels since the dot-com collapse in 1999 and 2000.
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Now is the time to reduce risk for 2022 and move 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. Yet, the requirements go even further. The following attributes are mandatory for membership on the Dividend Aristocrats 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 the generational lows, we thought it would be worthwhile to look for companies on the Dividend Aristocrats list that are in sectors that have underperformed in 2021 or are solid plays as investors continue to deal with both rising inflation and the potential for rising interest rates in 2022.

AbbVie

This is one of the top pharmaceutical stock picks across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.

One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so in June of 2019 it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth. The purchase officially closed in May of last year.

AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.

Shareholders receive a 4.20% dividend. Wells Fargo has an Overweight rating and a $165 price objective. The consensus price target for AbbVie is lower at $132.97. The closing share price on Tuesday was $134.39.

This is also a solid way for more conservative growth and income investors to play the health care sector. Cardinal Health Inc. (NYSE: CAH) is one of the largest drug and medical product distributors. The company generates approximately two-thirds of its profit from the pharmaceutical business and nearly one-third from its medical business.
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The pharmaceutical distribution business supports retail/mail/hospital/physician clients, as well as drug manufacturers. The medical business manufactures its own portfolio of medical products and distributes brand-name products to hospitals and physicians.

Shareholders receive a 3.80% dividend. For Cardinal Health stock, Barclays has an Overweight rating and a $65 price objective. The lower consensus target is $56.54, and Tuesday’s closing print was $51.72.

Exxon Mobil

Despite the recent rally in oil, this mega-cap energy leader still trades below levels posted last summer and offers investors an excellent entry point. 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.

The company announced recently that Exxon Mobil Catalysts and licensing has introduced Exxon Mobil Renewable Diesel (EMRD) process technology to help meet the evolving needs for mobility, while utilizing renewable feedstock. This new process technology converts feedstocks including, but not limited to, vegetable oils, unconverted cooking oil and animal fats, into renewable diesel. Due to significant interest in producing renewable jet fuel as a primary product, Exxon is also developing advanced catalyst and process technology solutions that will offer EMRD process licensees flexibility to tailor the amount of jet fuel versus diesel produced.

Exxon Mobil stock comes with a huge 5.71% dividend, which will continue to be defended. The $95 BofA Securities price target is well above the $72.25 consensus figure. Shares closed trading on Wednesday at $61.69 apiece.

This company is a mutual fund powerhouse and continues to grow its huge asset base. Franklin Resources Inc. (NYSE: BEN) is among the largest and most global investment managers. At times, 50% of its sales are from outside the United States, an advantage given a maturing U.S. market.
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Franklin Resources offers its products and services under the brands of Franklin, Templeton, Franklin Mutual Series, Franklin Bissett, Fiduciary Trust, Darby, Balanced Equity Management, K2, LibertyShares, and Edinburgh Partners.

The continuing bull market has proven to be a solid tailwind for the company, and while withdrawals from baby boomers may be a concern, the path forward looks solid.

Shareholders receive a 3.41% dividend. Citigroup’s Buy rating on Franklin Resources stock comes with a $43 price target. The consensus target is $36.70, and shares closed at $34.06 on Tuesday.

Realty Income

This is an ideal stock for growth and income investors looking for a safer, inflation-busting idea for 2022. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income. It is structured as a real estate investment trust (REIT), and its monthly dividends are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants.

To date, the company has declared 604 consecutive common stock monthly dividends throughout its 51-year operating history and increased the dividend 108 times since its public listing in 1994, garnering it a spot on the S&P 500 Dividend Aristocrats index.

Investors receive a 4.14% distribution. Goldman Sachs has set a $92 price objective on the Buy-rated stock. That compares with the much lower $78.71 consensus target. Realty Income stock had a $71.40 share price on Tuesday’s close.

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These are two health care stocks from a sector that has dramatically underperformed, a top REIT, a commodity heavyweight with oil and inflation poised to shoot higher, and a financial giant that has seen assets under management continue to grow. All five will continue to pay investors dependable dividends, and they could be exceptional stocks to own if the going gets rough in 2022.

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