After the worst quarter for stocks since 2020, many investors have cheered the recent market rally that lifted both the Nasdaq and the Russell 2000 out of bear market territory and being down over 20%. However, there are some serious storm clouds on the horizon. With inflation hovering at 40-year highs, the Federal Reserve poised to raise interest rates another 1% by the end of the quarter, and quantitative easing turning into deleveraging of the Fed’s massive holdings, investors need to be ready for some serious changes.
Investors need to be careful and remember that Wall Street is perpetually bullish, because it needs to sell stocks, bonds and derivatives. However, we could be headed for a recession and stagflation as a best case scenario, with a worldwide depression as the worst.
One good idea now is to move to safe, dividend-paying stocks. 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 are also mandatory for membership on the vaunted 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.
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With the potential for a sizable correction looming, 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, all of which 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.
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.
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.
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The Pipeline and Storage 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 a 2.25% dividend. Morgan Stanley recently lifted its $121 target price on Atmos Energy stock to $128. The consensus target is $118.71, less than Friday’s closing price of $121.41 a share.
Colgate-Palmolive
This top dividend payer is also a very safe play for investors. Colgate-Palmolive Co. (NYSE: CL | CL Price Prediction) is a great stock to buy in consumer staples. The company continues to deliver solid execution and is one of the best-positioned in its sector, given its strong brands in attractive categories, particularly oral care.
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 weak dollar making products attractive overseas.
Colgate-Palmolive stock investors receive a 2.46% dividend. The Credit Suisse price target is $90, and the consensus target is $86.26. The shares ended Friday trading at $76.42.
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) is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops and manages apartment communities in selected West Coast markets.
This an S&P 500 company has ownership interests in 246 apartment communities comprising approximately 60,000 homes, with an additional six properties in various stages of active development.
Shareholders receive a 2.49% dividend. Truist Financial has a $390 price objective. The $366.45 consensus target on Essex Property Trust is closer to Friday’s closing price of $353.49 per share.
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Johnson & Johnson
With a diverse product base and an exceedingly popular and solid brand, this is among the most conservative big pharmaceutical plays, and vaccine demand could spike again. Johnson & Johnson (NYSE: JNJ) is one of the top market cap stocks in the health care sector and raised the dividend for shareholders this month for the 60th 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 also has one of the most exciting pipelines of new drugs in the sector, and it generates a little over half of its sales in international markets, which are expected to see higher spending on healthcare over the next 10 years and beyond. All that makes the stock an outstanding holding for conservative investors with a long-term investment outlook.
Shareholders receive a 2.38% yield. The Citigroup price target of $195 is well above the $186.53 consensus target. Johnson & Johnson stock closed at $178.19 on Friday.
PepsiCo
This is a top consumer staples stock that soon will be supplying the goods for summer picnics and backyard barbecues across the country. 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 2.80% dividend. The PepsiCo stock price target at Morgan Stanley is $188, while the consensus target is $180.05. Shares closed at $169.76 on Friday.
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These five stocks have reasonable upside to the Wall Street targets, and the companies all pay very dependable dividends, given the Dividend Aristocrat status. With even moderate appreciation in the shares 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, especially given the economic tsunami we may be facing sooner rather than later this year.
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