Some on Wall Street feel that technical stock analysis is the key to finding directions and market trends. Others feel it is practically useless as it fails to factor in black-swan-type one-off events. The black swan theory is a metaphor that describes an event that comes as a surprise, has a major effect and is often inappropriately rationalized after the fact with the benefit of hindsight. One of the best examples is the horrific events of 9/11.
Those who do follow technical analysis see the S&P 500 breaking through the 3,900 level as a big deal, and what was formally support for the venerable index now likely has turned into a resistance point for the markets. With a 75-basis-point increase in the federal funds rate all but a given on Wednesday, it makes sense for investors to not “fight the Fed” and move to defensive dividend stocks.
Defensive stocks are typically those of companies that supply items or services that are needed regardless of the state of the economy. Toss in the kicker of a dependable dividend, and you have the type of companies that worried investors should prefer now.
We screened our 24/7 Wall St. research database looking for defensive dividend leaders. We found seven that are Buy rated at major Wall Street firms and look like outstanding ideas now. It is important to remember that no single analyst report should be used as the sole basis for any buying or selling decision.
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Coca-Cola
This remains a top Warren Buffet holding, as he owns 400 million shares. Coca-Cola Co. (NYSE: KO | KO Price Prediction) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. It has an incredibly strong worldwide brand, with 40% overseas sales.
The company’s portfolio features 20 billion-dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle. Globally, it is the number one provider of sparkling beverages, ready-to-drink coffees and juices and juice drinks.
Through the world’s largest beverage distribution system, consumers in more than 200 countries enjoy Coca-Cola beverages at a rate of more than 1.9 billion servings a day. Also remember that the company also owns 16.7% of Monster Beverage, which continues to deliver big numbers.
Investors receive a 2.96% dividend. HSBC has a $75 target price, and the consensus target is $69.80. Coca-Cola stock closed on Monday at $59.99.
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General Mills
General Mills Inc. (NYSE: GIS) manufactures and markets branded consumer foods worldwide. The company offers ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, bakery flour, frozen pizza and pizza snacks, snack bars, fruit and salty snacks, ice cream, nutrition bars, wellness beverages, and savory and grain snacks, as well as various organic products, including frozen and shelf-stable vegetables.
General Mills also supplies branded and unbranded food products to the North American foodservice and commercial baking industries, and it manufactures and markets pet food products, including dog and cat food.
The company markets its products under the Annie’s, Betty Crocker, Bisquick, Blue Buffalo, Blue Basics, Blue Freedom, Bugles, Cascadian Farm, Cheerios, Chex, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, Fiber One, Food Should Taste Good, Fruit by the Foot, Fruit Gushers, Fruit Roll-Ups, Gardetto’s, Go-Gurt, Gold Medal, Golden Grahams, Häagen-Dazs, Helpers, Jus-Rol, Kitano, Kix, Lärabar, Latina, Lucky Charms, Muir Glen, Nature Valley, Oatmeal Crisp, Old El Paso, Oui, Pillsbury, Progresso, Raisin Nut Bran, Total, Totino’s, Trix, Wanchai Ferry, Wheaties, Wilderness, Yoki and Yoplait trademarks.
Shareholders receive a 2.87% yield. Citigroup’s $88 price target on General Mills stock is well above the $63.00 consensus target. The stock closed at $75.83 on Monday.
Kraft Heinz
Even in bad times, everybody has to eat, and this company always stands to benefit. Kraft Heinz Co. (NASDAQ: KHC) was formed via the merger of H.J. Heinz and Kraft Foods. The company is a leading global food company, with $29 billion of annual revenues generated by such well-known brands as Kraft, Heinz, Oscar Meyer and Maxwell House.
It is the third-largest food and beverage manufacturer in North America, deriving 76% of revenues from that market and 24% internationally. Additional brands include Oscar Meyer, Maxwell House, Capri Sun, Classico, Jell-O, Kool-Aid, Lunchables, Ore-Ida, Oscar Mayer, Philadelphia, Planters, Plasmon, Quero, Weight Watchers Smart Ones and Velveeta.
Kraft Heinz stock comes with a 4.61% dividend. It is one of Stifel’s top dividend picks. The firm’s $48 price target is higher than the $41.94 consensus target price and Monday’s close at $34.61.
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Kroger
This grocery chain giant is always a solid idea when the going gets rough as people tend to go out less. Kroger Co. (NYSE: KR) operates as a retailer in the United States. It operates combination food and drug stores, multi-department stores, marketplace stores and price impact warehouses.
Its food and drug stores offer natural food and organic sections, pharmacies, general merchandise, pet centers, fresh seafood and organic produce. Its multi-department stores provide apparel, home fashion and furnishings, outdoor living, electronics, automotive products and toys.
Kroger’s marketplace stores offer full-service grocery, pharmacy, health and beauty care, and perishable goods, as well as general merchandise, including apparel, home goods, and toys. The price impact warehouse stores provide grocery and health and beauty care items, as well as meat, dairy, baked goods and fresh produce items.
The company also manufactures and processes food products for sale in its supermarkets and online, and it sells fuel through 1,613 fuel centers. As of January 29, 2022, the company operated 2,726 supermarkets under various banner names in 35 states and the District of Columbia.
After strong second-quarter results, and company rewarded investors by raising the dividend a stunning 24%. Shareholders are now paid a 2.20% dividend. BofA Securities has set a $75 target price. The $54.88 consensus target on Kroger stock is closer to Monday’s close at $47.45 a share.
Lockheed Martin
This is a top aerospace and defense stock, and many on Wall Street expect a very solid continuation of U.S. and foreign defense spending. Lockheed Martin Corp. (NYSE: LMT) researches, designs, develops, manufactures, integrates, operates and sustains advanced technology systems, products and services. It also provides a wide range of defense electronics products and IT services.
Being the Pentagon’s prime contractor, Lockheed Martin offers a diverse portfolio of global aerospace, defense, security and advanced technologies. Its leveraged presence in the Army, Air Force, Navy and IT programs guarantees a steady inflow of follow-on orders, not only from the U.S. government but also from many foreign allies of the nation.
Over the past several years, Lockheed Martin’s backlog has substantially outgrown the rest of the industry, supporting the growth outlook for the foreseeable future. The company has exposure to Department of Defense priority buckets and consistently executes well. Even if the end market growth rate slows, continued strong fundamentals can be expected, with compounding earnings and cash flows.
Lockheed Martin stock investors receive a 2.70% dividend. Morgan Stanley’s price objective is $522. The consensus target is just $459.32, and the close on Monday at $416.52 per share.
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McDonald’s
The legacy fast-food heavyweight is a solid pick when the economy goes south, and it is among the safest large-cap restaurant plays. McDonald’s Corp. (NYSE: MCD) operates and franchises McDonald’s restaurants in the United States and internationally.
The company’s restaurants offer hamburgers and cheeseburgers, chicken sandwiches and nuggets, wraps, fries, salads, oatmeal, shakes, desserts, sundaes, soft serve cones, bakery items, soft drinks, coffee, and other beverages, as well as a breakfast menu, including biscuit and bagel sandwiches, breakfast burritos, hotcakes and other sandwiches. As of December 31, 2021, the company operated 40,031 restaurants.
McDonald’s second-quarter earnings per share jumped a strong 19% year over year and was above consensus estimates. Revenue was 10% higher to $5.67 billion, also topping forecasts. In addition, same-store-sales, which is a huge metric for the company, rose 11.8%. While that number represented a big drop from prior quarters, it was much better than gloomy Wall Street expectations.
The dividend yield here is 2.17%. McDonald’s stock has a Wall Street-leading $300 target price at BMO Capital Markets. The consensus target is $282.88. The final trade for Monday was reported at $257.01.
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Merck
This remains a leading health care stock for conservative investors. Merck & Co. Inc. (NYSE: MRK) operates as a health care company worldwide. It operates through the following two segments.
The Pharmaceutical segment offers human health pharmaceutical products in the areas of oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular and diabetes, as well as vaccine products, such as preventive pediatric, adolescent and adult vaccines.
The Animal Health segment discovers, develops, manufactures and markets veterinary pharmaceuticals, vaccines and health management solutions and services, as well as digitally connected identification, traceability and monitoring products.
Merck serves drug wholesalers and retailers, hospitals and government agencies; managed health care providers, such as health maintenance organizations, pharmacy benefit managers and other institutions; and physicians and physician distributors, veterinarians and animal producers. The company has collaborations with AstraZeneca, Bayer, Eisai, Ridgeback Biotherapeutics and Gilead Sciences.
Investors receive a 3.15% dividend. The SVB Leerink target price is $109. Analysts have a consensus target of $100.85. Monday’s closing print for Merck stock was $86.64.
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All seven of the companies have reasonable upside to the Wall Street targets, and they all pay very dependable dividends. With even moderate appreciation in the share prices of these top companies, investors should be looking at double-digit total return potential. In a market that is very volatile, and could be much headed lower as we are in a recession, these safe stocks make a ton of sense now.
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