One thing has become painfully obvious, after Friday’s consumer price index reading came in at a scorching 8.6% year over year, the highest reading since 1981. The Federal Reserve has been woefully behind the proverbial curve, and it may have to step on the interest rate increases pedal pronto. Former Reagan advisor and economist Art Laffer said last week that Fed Chair Jay Powell should go “full Paul Volker” and jack interest rates up huge.
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While the federal funds rate likely will not go to the incredible 20% level that American consumers faced in June of 1981, there are rumblings across Wall Street that the Fed could get more aggressive at this week’s meeting and the expected 50-basis-point hike could turn into a 75-basis-point increase. While a long-shot a month ago, it seems very plausible now, with inflation totally out of control.

Jefferies Chief Economist Aneta Markowska is one on Wall Street who thinks the 75-basis-point increase is indeed a possibility, and the Jefferies team noted this in a recent commentary:

Goods inflation has largely continued to roll, and service inflation has continued to rip. And sure, it’s summertime and folks have spent a few years being both cooped up and making money on speculative trading – travel is going to be better than the macro would otherwise support. But there are two very troubling aspects: 1) the cost of shelter continues to rise and that is sticky inflation and 2) the strong demand environment, mixed with supply constraints and shocks, has caused energy commodities to also put upward price pressure on the US consumer. With newfound confidence that inflation isn’t just going to go away soon, we remain of the view that several hundred more basis points of Fed Funds are probably on the horizon.

Typically in a rising interest rate environment, financials benefit from higher rates through increased profit margins. Industrials, consumer names and retailers also can outperform when the economy improves and interest rates rise. While the economy may not improve in the near term, it is likely with the country reopening after two years of COVID-19-induced stagnation that things could at least trend slightly better.

Investors worried about rising rates and stock volatility may be drawn to the Dividend Kings. These are the 44 companies that have raised the dividends they pay to shareholders a stunning 50 consecutive years or longer. We screened the Dividend Kings list for the stocks in sectors that could hold their own in the potential rising-rate scenario. The following seven are rated Buy at major 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.

This is a top pharmaceutical stock pick 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.
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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 2020.

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 3.78% dividend. Wells Fargo has a Wall Street high target price of $200 on AbbVie stock. The Wall Street consensus target is $163.01, and the stock closed trading on Friday at $143.20.

Becton Dickinson

This top health care company is a solid and safe play now. Becton Dickinson and Co. (NYSE: BDX) develops, manufactures and sells medical supplies, devices, laboratory equipment and diagnostic products for health care institutions, physicians, life science researchers, clinical laboratories, the pharmaceutical industry and the general public worldwide.

Its BD Medical segment offers peripheral intravenous (IV) and advanced peripheral catheters, central lines, acute dialysis catheters, vascular care and preparation products, needle-free IV connectors and extensions sets, closed-system drug transfer devices, hazardous drug detections, hypodermic syringes and needles, anesthesia needles and trays, enteral syringes and sharps disposal systems. It offers IV medication and infusion therapy delivery systems, medication compounding workflow systems, automated medication dispensing and supply management systems, and medication inventory optimization and tracking systems. Products also include syringes, pen needles and other products for diabetes, as well as prefillable drug delivery systems.

The BD Life Sciences segment provides specimen and blood collection products. It offers automated blood and tuberculosis culturing, molecular testing, microorganism identification and drug susceptibility and liquid-based cytology systems, as well as rapid diagnostic assays, microbiology laboratory automation products and plated media products. Its products also include fluorescence-activated cell sorters and analyzers, antibodies and kits, reagent systems and solutions for single-cell gene expression analysis, as well as clinical oncology, immunological and transplantation diagnostic/monitoring reagents and analyzers.
The company’s BD Interventional segment offers hernia and soft tissue repair, biological and bioresorbable grafts, biosurgery and other surgical products; surgical infection prevention, surgical and laparoscopic instrumentation products; peripheral intervention products; and urology and critical care products.

Becton Dickinson stock investors receive a 1.40% dividend. Morgan Stanley’s $295 price target compares with the $284.45 consensus target and Friday’s close at $249.33 a share.
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Black Hills

This Dividend King is way off the radar for many, but it is among the safest plays now. Black Hills Corp. (NYSE: BKH) operates as an electric and natural gas utility company in the United States.

The Electric Utilities segment generates, transmits and distributes electricity to approximately 218,000 electric utility customers in Colorado, Montana, South Dakota and Wyoming. It owns and operates 1,481.5 megawatts of generation capacity and 8,892 miles of electric transmission and distribution lines.

The Gas Utilities segment distributes natural gas to approximately 1,094,000 natural gas utility customers in Arkansas, Colorado, Iowa, Kansas, Nebraska and Wyoming. It owns and operates 4,732 miles of intrastate gas transmission pipelines, 41,644 miles of gas distribution mains and service lines, six natural gas storage sites and approximately 50,000 horsepower of compression and 515 miles of gathering lines.

The company also constructs and maintains gas infrastructure facilities for gas transportation customers, and it provides appliance repair services to residential utility customers, as well as electrical system construction services to large industrial customers. In addition, it produces electric power through wind, natural gas and coal-fired generating plants, as well as coal at its coal mine located near Gillette, Wyoming.

Shareholders receive a 3.20% dividend. The BofA Securities target price is $87, while the consensus target is $82.29. Black Hills stock closed at $74.40 on Friday.

Colgate-Palmolive

This reliable dividend payer is also a very safe play for investors. Colgate-Palmolive Co. (NYSE: CL) is the stock to buy in consumer staples. The company continues to deliver solid execution and is one of the best-positioned in its staples sector, given its strong brands in attractive categories, particularly oral care.

Over half of total revenues (52%) are derived in faster-growth emerging economies, and the company maintains leading or near-leading market shares in Brazil, Russia, India and China. While those have markets slowed over the past year, a pickup in growth could be coming, especially with a weak dollar making products attractive overseas.

Colgate-Palmolive stock comes with a 2.45% dividend. The $88 Stifel price target is higher than the $81.47 consensus target, and shares closed on Friday at $76.63.

Investors looking for a strong industrial idea may want to consider this venerable company. Illinois Tool Works Inc. (NYSE: ITW) manufactures and sells industrial products and equipment worldwide. It operates through these segments:
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• Automotive OEM: Offers plastic and metal components, fasteners, and assemblies for automobiles, light trucks and other industrial uses.
• Food Equipment: Provides warewashing, refrigeration, cooking and food processing equipment; kitchen exhaust, ventilation, and pollution control systems; and food equipment maintenance and repair services.
• Test & Measurement and Electronics: Produces and sells equipment, consumables and related software for testing and measuring of materials and structures, as well as equipment and consumables used in the production of electronic subassemblies and microelectronics.
• Welding: Produces arc welding equipment and metal arc welding consumables and related accessories.
• Polymers & Fluids: Produces adhesives, sealants, lubrication and cutting fluids, as well as fluids and polymers for auto aftermarket maintenance and appearance.
• Construction Products: Offers engineered fastening systems and solutions for the residential construction, renovation/remodel and commercial construction markets.

Shareholders receive a 2.48% dividend. J.P. Morgan has a $255 price target. The $219.06 consensus target on Illinois Tool Works stock is closer to Friday’s closing print of $196.97.

Leggett & Platt

While somewhat off the radar, this stock has almost been cut in half over the past year and offers massive upside potential. Leggett & Platt Inc. (NYSE: LEG) designs, manufactures and markets engineered components and products worldwide.

The company offers steel rods, drawn wires, foam chemicals and additives, innersprings, specialty foams, private label finished mattresses, mattress foundations, wire forms for mattress foundations, adjustable beds, industrial sewing and quilting machines, and mattress packaging and glue drying equipment, as well as machines to produce innersprings for industrial users of steel rods and wires, manufacturers of finished bedding, big box and e-commerce retailers, bedding brands and mattress retailers, department stores and home improvement centers.

Leggett & Platt also provides mechanical and pneumatic lumbar support and massage systems for automotive seating; seat suspension systems, motors and actuators and cables; titanium, nickel and stainless-steel tubing, formed tubes, tube assemblies and flexible joint components for fluid conveyance systems; and engineered hydraulic cylinders to automobile original equipment manufacturers (OEMs) and Tier 1 suppliers, aerospace OEMs and suppliers, and mobile equipment OEMs.

Investors receive a 4.73% dividend. The target price on Leggett & Platt stock at Goldman Sachs is $50. The consensus target is $46.50, and shares closed Friday at $37.23.

In times when the economy is struggling, the do-it-yourself legions repair instead of replace, and this tool giant is a very solid play. Stanley Black & Decker Inc. (NYSE: SWK) engages in the tools and storage and industrial businesses in the Americas, Europe and Asia.
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Its Tools & Storage segment offers professional products, including professional-grade corded and cordless electric power tools and equipment and pneumatic tools and fasteners. Its consumer products include corded and cordless electric power tools, primarily under the Black + Decker brand, as well as corded and cordless lawn and garden products and related accessories home products and hand tools, power tool accessories and storage products. This segment sells its products through retailers, distributors, dealers and a direct sales force to professional end-users, distributors, dealers, retail consumers and industrial customers in various industries.

The Industrial segment provides engineered fastening systems and products to customers in the automotive, manufacturing, electronics, construction, aerospace, oil and natural gas pipeline and other industries. It sells and rents custom pipe handling, joint welding and coating equipment for use in the construction of large and small diameter pipelines, as well as provides pipeline inspection services. It also sells hydraulic tools and performance-driven heavy equipment attachment tools and sells automatic doors to commercial customers.

The dividend yield is 2.87%. Morgan Stanley’s $137 target price is less than the $155.71 consensus target. Stanley Black & Decker stock closed almost 7% lower on Friday at $109.96.

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These seven stocks should still do well even if the Fed pulls out the bazooka this week and delivers a 75-basis-point increase. The reality is the central bank is way behind the curve, and drastic measures may be in order to stem the spiraling inflation. The response to an increase of this size likely will not be good, so it may make sense to see what the actual print is, then see if the market reaction is what would be expected. Then, and only then, start to nibble at these outstanding stocks.

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