In what will be known in the future as the pandemic years, the easy money and the government’s spoon-fed liquidity made lots of new investors feel like they were genius and savvy traders. Those that made big money on meme stocks that were retail-driven short-squeeze winners are now finding out the hard way that when the Federal Reserve turns off the money spigot, and interest rates skyrocket to the highest levels in over 15 years, the game becomes a little harder to play.
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So now what? When the S&P 500 broke 3,900, it became obvious to many that we could be poised to test the June market lows of 3,636. That is over 200 points away. In addition, top strategists across Wall Street feel that to really hit a hard bottom, we need capitulation in which people just want out at any price. Then, and only then, can the market proceed higher.

The best plan now is to stay in cash. If passive income is required from investments, investors often look for defensive companies paying big dividends, and they may be drawn to the Dividend Aristocrats. 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. However, the requirements for membership go even further. Companies must:

• Be worth at least $3 billion at the time of each quarterly rebalancing.
• Have an average daily volume of at least $5 million in transactions for every trailing three-month period at every quarterly rebalancing date.
• Be a member of the S&P 500.

With the potential for massive downside still looming, and interest rates definitely going higher, 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 and next year. Seven 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.

AbbVie

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.

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.

The bad news for shareholders is that 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.

Investors receive a 3.92% dividend. Morgan Stanley has a $188 target price on AbbVie stock. The consensus target is lower at $158.85, and the stock closed trading on Tuesday at $141.77.

This insurance stock has been clobbered and offers an attractive entry point. Aflac Inc. (NYSE: AFL), known for its famous duck commercials, provides supplemental health and life insurance products.
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The company’s Aflac Japan segment offers cancer, medical, nursing care income support, GIFT, and whole and term life insurance products, as well as WAYS and child endowment plans under saving type insurance products in Japan.

The Aflac U.S. segment provides cancer, accident, short-term disability, critical illness, hospital indemnity, dental, vision, long-term care and disability and term and whole life insurance products in the United States. It sells its products through sales associates, brokers, independent corporate agencies, individual agencies and affiliated corporate agencies.

Shareholders receive a 2.69% dividend. Piper Sandler’s $66 target price is higher than the $62.23 consensus target on Aflac stock. The shares closed at $60.53 on Tuesday.

Cardinal Health

This is a solid way for growth and income investors who are more conservative to play the health care sector. Cardinal Health Inc. (NYSE: CAH) is one of the largest drug and medical product distributors. The company generates approximately two-thirds of its profit from the pharmaceutical business and nearly one-third from its medical business.

The pharmaceutical distribution business supports retail/mail/hospital/physician clients, as well as drug manufacturers. The medical business manufactures its own portfolio of medical products and distributes brand-name products to hospitals and physicians.

Cardinal Health investors receive a 3.00% dividend. The $76 Morgan Stanley price objective compares with the $69.54 consensus target and Tuesday’s closing print of $67.79.

Essex Property Trust

This stock has been hammered, but it is an outstanding way for investors looking to add an inflation-busting 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.

The company currently has ownership interests in 246 apartment communities comprising approximately 60,000 homes, with an additional six properties in various stages of active development.

Here, the dividend yield is 3.42%. Truist Financial has set a $324 price objective. The consensus target is $311.27, and Tuesday’s closing share price for Essex Property Trust stock was $251.10.

Oil is trading well off the 2022 highs, and this mega-cap energy leader offers investors an excellent entry point. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.
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Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products.

Top Wall Street analysts expect the company to remain a key beneficiary in this higher oil price environment, and most remain strongly positive about the company’s sharp positive inflection in capital allocation strategy, upstream portfolio, and leverage to a further demand recovery, with Exxon Mobil offering greater downstream/chemicals exposure relative to peers.

Exxon Mobil stock comes with a 3.78% dividend, which will continue to be defended. Its price target at BofA Securities is $123. The consensus target is lower at $106.77, and shares closed at $92.44 on Tuesday.

General Dynamics

Like other major defense contractors, this submarine and tank builder looks poised to deliver solid numbers and guidance the rest of this year and perhaps beyond. General Dynamics Corp. (NYSE: GD) operates as an aerospace and defense company worldwide.

Its Aerospace segment designs, manufactures and sells business jets, and it offers aircraft maintenance and repair, management, charter, aircraft-on-ground support and completion, staffing and fixed-base operator services.

The Marine Systems segment designs and builds nuclear-powered submarines, surface combatants and auxiliary ships for the United States Navy and Jones Act ships for commercial customers, as well as builds crude oil and product tankers, and container and cargo ships. This segment also provides navy ships maintenance and modernization services; lifecycle support and repair services for navy surface ships; and program management, planning, engineering and design support services for submarines and surface ships.

The Combat Systems segment manufactures land combat solutions, such as wheeled and tracked combat vehicles, Stryker wheeled combat vehicles, piranha vehicles, weapons systems, munitions, mobile bridge systems with payloads, tactical vehicles, main battle tanks, armored vehicles and armaments. This segment also offers modernization programs, engineering, support and sustainment services.
The Technologies segment provides information technology solutions and mission support services; mobile communication, computers and command-and-control mission systems; and intelligence, surveillance and reconnaissance solutions to military, intelligence and federal civilian customers. This segment also offers cloud computing, artificial intelligence; machine learning; big data analytics; development, security and operations; software-defined networks; everything-as-a-service; defense enterprise office system solutions; and unmanned undersea vehicle manufacturing and assembly services.
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Shareholders receive a 2.22% dividend. General Dynamics stock has a $282 price objective at Wells Fargo. The $264.38 consensus target is also well above Tuesday’s close at $229.11.

Walmart

The giant retailer has posted solid results over the past year, and it is a top idea in an inflationary environment, when consumers look for value. Walmart Inc. (NYSE: WMT) is the world’s largest retailer, operating retail stores under the formats of Walmart Stores, Supercenters, Neighborhood Markets and Sam’s Club locations in the United States, as well as a growing e-commerce business. Internationally Walmart also operates locations in several countries, including Argentina, Brazil, Canada, China, Japan, Mexico and the United Kingdom.

Each week, nearly 260 million customers and members visit the company’s 11,535 stores under 72 banners in 28 countries and e-commerce websites in 11 countries. It had fiscal 2020 revenue of over $550 billion, and Walmart employs approximately 2.2 million associates worldwide.

Investors receive a 1.67% dividend. The D.A. Davidson price target is $163. The consensus target was last seen at $151.89. Walmart stock ended Tuesday trading at $121.08.

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These stocks all have reasonable upside to the Wall Street targets, and they come with dependable dividends, given their Dividend Aristocrat status. 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 remains very long in the tooth, and with an economy that is sputtering, these picks make a ton of sense for nervous investors now.

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