Without a doubt, 2022 has been one of the worst years for stock investors in some time. Despite brief bear market rallies, there is a very good chance that things could continue to worsen before they improve. The venerable Wall Street quote of “Don’t fight the Fed” works both ways. Interest rates will continue to be raised until the current stifling inflation is brought under control, and it could be this time next year before the interest rate increases are halted.
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A new Jefferies research report notes that stocks in the defensive arena have been among the strongest performing in the S&P 500 this year. With the likelihood of continued risk-off sentiment as 2022 rolls on, the companies in this quadrant that will outperform also may have to have to be those with solid targeted capital allocation plans that thrive. The report noted this:

Despite the recent rally off of year-to-date lows, the dual specters of higher rates and a potential economic slowdown continue to weigh on equities. Given the prospect for prolonged uncertainty, a meaningful change in tack may be required, particularly if the economy should take some time to bottom. As a result, we believe investors should start to consider not merely positioning within defensive sectors, but selecting stocks with more defensive characteristics or offensive capabilities that aren’t reliant on a high growth environment.

Thirty-three companies stood out as those with notable offensive and defensive capital allocation attributes. We screened the list for the eight highest-yielding stocks. While all are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Offensive Capital Allocation Opportunities

Agree Realty

This real estate investment trust offers a solid dividend and a good inflation hedge for investors. Agree Realty Corp. (NYSE: ADC) is primarily engaged in the acquisition and development of properties net leased to industry-leading retail tenants. As of September 30, 2020, the company owned and operated a portfolio of 1,027 properties, located in 45 states and containing approximately 21.0 million square feet of gross leasable area.

The company has raised dividends for the last 11 years, and investors get the luxury of monthly dividend payments as opposed to quarterly, which could come in handy for those relying on income sources to pay the bills.

The monthly dividend that Agree Realty stock investors receive is 4.00%. The Jefferies price target for the shares is $77, while the consensus target is $76.80. Monday’s closing share price was $70.31.

Altria

This maker of tobacco products offers value investors a great entry point now as it has been hit as cigarette sales have slowed. Altria Group Inc. (NYSE: MO) is the parent company of Philip Morris USA (cigarettes), UST (smokeless), John Middleton (cigars), Ste. Michelle Wine Estates and Philip Morris Capital. PMUSA enjoys a 51% share of the U.S. cigarette market, led by its top cigarette brand Marlboro.
Altria also owns over 10% of Anheuser-Busch InBev, the world’s largest brewer. In March 2008, it spun off its international cigarette business to shareholders. In December 2018, the company acquired 35% of Juul Labs, and it has purchased a 45% stake in cannabis company Cronus for $1.8 billion.
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The company also is rolling out its own heated and vapor products, such as Marlboro HeatSticks and IQOS, both of which are slowly being expanded across the United States. The company has increased its dividend for 52 consecutive years.

Shareholders receive a 6.69% dividend. Jefferies has a $58 target on Altria stock, and the consensus target is $56.83. The stock closed Monday at $53.59.

Mondelez

This consumer staples giant also makes good sense for conservative investors. Mondelez International Inc. (NASDAQ: MDLZ) manufactures and markets snack food and beverage products worldwide. It offers biscuits, including cookies, crackers and salted snacks; chocolates, and gums and candies; powdered beverages and coffee; and cheese and grocery products.

Its primary brand portfolio includes LU, Nabisco and Oreo biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates; Trident gum; Jacobs Kaffee; and Tang powdered beverages.

Mondelez sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, gasoline stations, drug stores, value stores and other retail food outlets through direct store delivery, company-owned and satellite warehouses, distribution centers and other facilities, as well as through independent sales offices and agents.

Shareholders receive a 2.24% dividend. The Jefferies analysts have set their price target at $76, while the consensus target for Mondelez stock is $73.13. The shares closed on Monday at $62.45.

Reinsurance Group of America

Insurance companies tend to do well, as premiums always have to be paid regardless of the economy. Reinsurance Group of America Inc. (NYSE: RGA) offers individual and group life and health insurance products, such as term life, credit life, universal life, whole life, group life and health, joint and last survivor insurance, critical illness, disability, and longevity products. It also offers asset-intensive and financial reinsurance products and other capital-motivated solutions.

The company provides reinsurance for mortality, morbidity, lapse and investment-related risk associated with products, as well as reinsurance for investment-related risks. In addition, it develops and markets technology solutions, and it provides consulting and outsourcing solutions for the insurance and reinsurance industries. The company serves life insurance companies in North America, Europe, the Middle East and elsewhere.

Investors receive a 2.37% dividend. The $138 Jefferies price target is well above the $129.91 consensus target and the most recent close at $126.02.

Amgen

This biotech giant remains a safer way to play the massive potential growth in biosimilars. Amgen Inc. (NASDAQ: AMGN) discovers, develops, manufactures and delivers human therapeutics worldwide. It focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology and neuroscience.
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Amgen’s products include the following:

• Enbrel to treat plaque psoriasis, rheumatoid arthritis and psoriatic arthritis
• Neulasta reduces the chance of infection due a low white blood cell count in patients with cancer
• Prolia to treat postmenopausal women with osteoporosis
• Xgeva for skeletal-related events prevention
• Otezla for the treatment of adult patients with plaque psoriasis, psoriatic arthritis and oral ulcers associated with Behcet’s disease
• Aranesp to treat a lower-than-normal number of red blood cells and anemia
• Kyprolis to treat patients with relapsed or refractory multiple myeloma
• Repatha, which reduces the risks of myocardial infarction, stroke and coronary revascularization

The company’s five key marketed products are among the top-selling pharmaceutical products in the world, with the company having expected collective revenues of more than $27 billion in 2022.

Amgen stock comes with a 3.12% dividend. The Jefferies price target is $295. The consensus target of $250.03 is closer to Monday’s close at $245.44.

British American Tobacco

This conglomerate got much bigger with the acquisition of Reynolds American in 2017. British American Tobacco PLC (NYSE: BTI) provides tobacco and nicotine products to consumers worldwide. It offers vapor products, tobacco heating products and modern oral products; combustible products; and traditional oral products, such as Swedish-style snus and American moist snuff. The company distributes its products to retail outlets.

The company’s New Categories business, which includes products outside of traditional cigarettes, saw revenues increase 50% to £942 million in the first half of 2021. The company has noted recently that non-combustible products, such as its Vuse vaping brand and Glo heated tobacco brand, now make up almost 12% of total operations.

Investors receive a 6.71% dividend. The $49.10 Jefferies price target is less than the $52.50 consensus target, but British American Tobacco stock closed at $44.22 on Monday.

Molson Coors Brewing

While the iconic American beer company did merge with a Canadian beer giant, it is still based in Denver. Molson Coors Beverage Co. (NYSE: TAP) is one of the world’s largest brewers (more than a 3% global share) with core brands Coors Light, Miller Lite, Carling, Molson Canadian and Staropramen.
Molson and Coors merged in February 2005 and added StarBev in 2012, and it serves markets including the United States, Canada, Eastern Europe and the United Kingdom and Ireland, with exposure to other markets through its Molson Coors International division. It acquired the remainder (58%) of the U.S. joint venture (MillerCoors) in mid-October 2016.
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The Coors light brand remains a huge favorite with Generation X and baby boomers, who were all around when the light beer revolution started. The company is now working on opportunities to market a cannabis-infused product.

Shareholders receive a 2.84% dividend. Molson Coors Brewing stock has a $66 price target at Jefferies. The consensus target is $56.94, and shares closed on Monday at $54.06.

Newell Brands

This top consumer goods stock is a safe play for investors worried about a toppy market, and it has backed up recently. Newell Brands Inc. (NASDAQ: NWL) is a manufacturer and marketer of consumer products with six reporting segments: Writing (Sharpie, Paper Mate, Waterman, Parker), Home Solutions (Rubbermaid, Calphalon, Goody), Tools (Irwin, Lenox), Commercial Products (Rubbermaid Commercial Products, Rubbermaid Healthcare), Baby & Parenting (Graco, Aprica) and Jarden (Yankee Candle, Jostens, Oster, Sunbeam, Mr. Coffee, K2, Marmot, Rawlings, Coleman, First Alert and many more).

Consumer staples stocks like Newell tend to be solid ideas in times of inflation and rising rates. In 2021, the company’s cash distributions to shareholders were close to $400 million. During the period, Newell produced roughly $600 million, which included an abnormally large $350 million in cash spent on an inventory buildup, which the company attributed to preparation for sales growth. With a dividend payout ratio below 70%, Newell should continue to easily support the large and tempting dividend.

Holders of Newell Brands stock are paid a 4.36% dividend. Jefferies has a $38 price target. The consensus target is $27.82, and shares closed on Monday at $21.39.

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These are eight top dividend-paying defensive stocks for investors looking to stay in equities but trying to avoid high beta momentum names. All these companies are very dominant in their respective sectors and should continue to report solid earnings through 2022 and beyond.

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