While most of the attention this past week has been focused on the potential for a conflict between Ukraine and Russia, the real problem for investors are the mounting inflation pressures, now at the highest levels in over 40 years. The Federal Reserve has been very tardy to the party, and the coming interest rate hikes, while desperately needed, could put a big crimp in the economy. Both the consumer and producer price index results for January came in above expectations, and despite positive retail sales last month, the cost of everything is rising, and rising fast.
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With yields rising, and the increase in the federal funds rate expected to start in March, safe corporate bonds are hardly the best idea now. Often when income investors look for companies paying big dividends, they are drawn to the Dividend Aristocrats, and with good reason. The 66 companies that made the cut for the 2022 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 Dividend Aristocrats list:

• Companies must be worth at least $3 billion at the time of each quarterly rebalancing.
• 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 headed higher starting next month, we thought it would be a good idea to look for companies on the Dividend Aristocrats list that are in sectors that are defensive but look poised to do well the rest of 2022.

Five stocks hit our screens. They are Buy rated at top Wall Street firms, but it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Consolidated Edison

This old-school utility stock offers investors the stability and track record many seek now. Consolidated Edison Inc. (NYSE: ED) offers electric services to approximately 3.5 million customers in New York City and Westchester County; gas to around 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County; and steam to about 1,700 customers in parts of Manhattan.

Consolidated Edison owns 62 area distribution substations and various distribution facilities; 39 transmission substations and 62 area stations; electric generation facilities with an aggregate capacity of 724 megawatts that run on gas and fuel oil; 4,348 miles of mains and 369,791 service lines for natural gas distribution; and one steam-electric generating station and five steam-only generating stations.

The company operates 572 circuit miles of transmission lines; 14 transmission substations; 86,794 in-service line transformers; 3,994 pole miles of overhead distribution lines; and 1,889 miles of underground distribution lines, as well as 1,867 miles of mains and 105,482 service lines for natural gas distribution. In addition, it is involved in the sale and related hedging of electricity to retail customers, and the provision of energy-related products and services to wholesale and retail customers.

Shareholders receive a 3.90% dividend. Mizuho has a $90 price target on Consolidated Edison stock, well above the $78.13 Wall Street consensus. The shares closed on Wednesday trading at $81.08.
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Federal Realty Investment Trust

While real estate has come back strongly, demand is still growing and hard assets are good in inflationary times. 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 3.58% distribution. Deutsche Bank’s $150 price target compares with the $138.59 consensus target on Federal Realty Investment Trust stock. The shares closed on Wednesday at $119.71.

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 raised the dividend for shareholders this year for the 56th consecutive year.
With everything from medical devices to over-the-counter health items and prescription drugs, the company remains one of the most diversified health care names on Wall Street. It also has one of the most exciting pipelines of new drugs in the sector. All that makes the stock an outstanding holding for conservative investors with a long-term investment outlook.

Johnson & Johnson 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.
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Johnson & Johnson stock investors receive a 2.54% yield. The $195 Citigroup price target compares with the lower consensus target of $186.44. The shares closed at $167.21 on Wednesday.

Procter & Gamble

The company offers a very solid dividend, which was raised to $0.8698 last year and should be raised again soon. Procter & Gamble Co. (NYSE: PG) is one of the world’s largest consumer products companies. Its many brands include Pampers, Tide, Bounty, Charmin, Gillette, Oral B, Crest, Olay, Pantene, Head & Shoulders, Ariel, Gain, Always, Tampax, Downy and Dawn. Some of these are among the most valuable brands in the world.

The company sells its products through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, department stores, distributors, wholesalers, baby stores, specialty beauty stores, high-frequency stores and pharmacies. The company has been very innovative in its product development process and uses that to help ensure future growth and cash flow. This should provide investors years of steady growth and dividends.

Shareholders receive a 2.20% dividend. Morgan Stanley has set its price objective at $177. The consensus target is $165.63, and Procter & Gamble stock closed on Wednesday at $158.01.

Walgreens

This huge drugstore chain operator is a safe retail play for investors looking to add health care 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.
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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 online 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 Netherlands, Mexico and elsewhere, 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 4.00% dividend. The Walgreens Boots Alliance stock price target at Baird is $68. The consensus target is just $53.55, and shares ended Wednesday at $47.88.

All five companies pay very dependable dividends and their stocks have reasonable upside to the Wall Street targets. With even moderate appreciation in the share prices, 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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