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 investors. 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 what is the best plan for 2023 after a horrible 2022? The Nasdaq was buried in bear market territory and the S&P 500 almost was, closing down 19.4%. While the big increases in the federal funds rate are probably over, it still appears that the Federal Reserve is intent on pushing rates higher to choke off the lower, but still persistent inflation.

The best plan now is to stay in cash, unless passive income is required from investments. Often when income investors look for defensive companies paying big dividends, they are drawn to the Dividend Aristocrats. The 66 companies that made the cut for the 2022 S&P 500 Dividend Aristocrats list (and likely will remain so in 2023) have increased dividends (not just remained the same) for 25 years straight. However, the requirements go even further. The following attributes are also mandatory for membership on the aristocrats list:

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

We screened the list looking for the companies that paid the highest dividends. Surprisingly, seven of the dividend leaders also look like very timely ideas to start 2023. All are rated Buy at major Wall Street firms, and they offer investors battered last year solid total return potential, which many on Wall Street feel will be a crucial component for investing success this year. It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

The seven companies are in order of the highest yields.

VFC

This proverbial “off-the-radar” idea can be purchased and held forever, as it makes name-brand popular clothing. V.F. Corp. (NYSE: VFC) engages in the design, procurement, marketing and distribution of branded lifestyle apparel, footwear and related products for men, women and children in the Americas, Europe and elsewhere.
VFC offers outdoor, merino wool and other natural fibers-based, lifestyle and casual apparel; footwear; equipment; accessories; outdoor-inspired, performance-based, youth culture/action sports-inspired, streetwear and protective work footwear; handbags, luggage, backpacks and totes; and work and work-inspired lifestyle apparel and footwear.
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The company provides its products under the North Face, Timberland, Smartwool, Icebreaker, Altra, Vans, Supreme, Kipling, Napapijri, Eastpak, JanSport, Dickies and Timberland PRO brand names. The company sells its products primarily to specialty stores, department stores, national chains and mass merchants, as well as through direct-to-consumer operations, including retail stores, concession retail stores and e-commerce sites and other digital platforms.

Shareholders will gladly take the 7.39% dividend. Baird has a $42 target price on VFC stock. The consensus target is just $30.43, while Thursday’s closing share price was $29.45.

Walgreens

This huge drugstore chain operator is a safe retail play for investors looking to add health care now. Walgreens Boots Alliance Inc. (NASDAQ: WBA) operates as a pharmacy-led health and beauty retail company. It operates through three segments.

The Retail Pharmacy USA segment sells prescription drugs and an assortment of retail products, including health, wellness, beauty, personal care, consumable, and general merchandise products through its retail drugstores. It also provides specialty pharmacy services and mail services; this segment operates nearly 10,000 retail stores under the Walgreens and Duane Reade brands in the United States; and six specialty pharmacies.

The Retail Pharmacy International segment sells prescription drugs and health and wellness, beauty, personal care and other consumer products through its pharmacy-led health and beauty stores and optical practices, as well as online and an integrated mobile application. This segment operated 4,428 retail stores under the Boots, Benavides and Ahumada in the United Kingdom, Thailand, Norway, the Netherlands, Mexico and elsewhere, and 550 optical practices, including 165 on a franchise basis.

The Pharmaceutical Wholesale segment engages in the wholesale and distribution of specialty and generic pharmaceuticals, health and beauty products, and home health care supplies and equipment, as well as provides related services to pharmacies and other health care providers.

Walgreens Boots Alliance stock comes with a 5.45% dividend. Cowen’s $54 target price compares with a $42.47 consensus target. The shares were last seen on Thursday trading at $35.19, which was down over 6% on the day despite beating earnings on a big opioid settlement.

This is an ideal stock for growth and income investors looking for a safer inflation-busting idea for 2023. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.
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The company is structured as a REIT, and its monthly distributions are supported by the cash flow from over 6,500 real estate properties owned under long-term lease agreements with commercial tenants. To date, the company has declared 608 consecutive common stock monthly dividends throughout its 54-year operating history and increased the dividend 109 times since its public listing in 1994. It is a top real estate member of the S&P 500 Dividend Aristocrats index.

Investors receive a 4.70% distribution. The $74 Morgan Stanley price objective is greater than the $69.07 consensus target on Realty Income and the $63.39 close on Thursday.

IBM

This blue chip giant offers investors an incredibly solid entry point, a massive dividend and a degree of safety for investors who are more conservative. International Business Machines Corp. (NYSE: IBM) provides integrated solutions and services worldwide through the following four business segments.

The Software segment offers hybrid cloud platform and software solutions, such as Red Hat, an enterprise open-source solutions; software for business automation, AIOps and management, integration, and application servers; data and artificial intelligence solutions; and security software and services for threat, data and identity. This segment also provides transaction processing software that supports clients’ mission-critical and on-premise workloads in banking, airlines and retail industries.

The Consulting segment offers business transformation services, including strategy, business process design and operations, data and analytics, and system integration services; technology consulting services; and application and cloud platform services.

The Infrastructure segment provides on-premises and cloud-based server and storage solutions for its clients’ mission-critical and regulated workloads; and support services and solutions for hybrid cloud infrastructure, as well as remanufacturing and remarketing services for used equipment.
IBM’s Financing segment offers lease, installment payment, loan financing and short-term working capital financing services.

The dividend yield here is 4.68%. The Credit Suisse price target is $155, and the consensus target is $142.43. Thursday’s closing print for IBM stock was $141.11.
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Federal Realty Investment Trust

While residential real estate has been struggling, demand is still solid in the commercial space, and hard assets are good in inflationary times. Federal Realty Investment Trust (NYSE: FRT) is a recognized leader in the ownership, operation and redevelopment of high-quality retail-based properties located primarily in major coastal markets from Boston to Washington, as well as San Francisco and Los Angeles.

Founded in 1962, Federal Realty’s mission is to deliver long-term, sustainable growth through investing in densely populated, affluent communities where retail demand exceeds supply. Its expertise includes creating urban, mixed-use neighborhoods like Santana Row in San Jose, California, Pike & Rose in North Bethesda, Maryland, and Assembly Row in Somerville, Massachusetts.

Federal Realty’s 105 properties include approximately 3,000 tenants in 24 million square feet and over 2,600 residential units. Federal Realty has increased its quarterly dividends to its shareholders for 52 consecutive years, the longest record in the real estate investment trust industry.

Unitholders of Federal Realty Investment Trust stock receive a 4.28% distribution. Raymond James’s $120 price target accompanies its Strong Buy rating. The consensus target is $114.90, and shares closed on Thursday at $102.72 apiece.

Stanley Black & Decker

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.

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.
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Note that Stanley Black & Decker beat Wall Street’s third-quarter earnings forecast by 2.7%.

Shareholders receive a 4.26% dividend. Stanley Black & Decker stock has a $92 target price at Barclays. The consensus target of $83.57 is nearer to Thursday’s close at $78.64 a share.

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 REIT that acquires, develops, redevelops and manages apartment communities in selected West Coast markets.

Essex currently has ownership interests in 246 apartment communities, comprising approximately 60,000 apartment homes, with an additional six properties in various stages of active development. With mortgage rates going higher, many people have decided to remain in apartment communities, and this trend could remain for some time.

Investors receive a 4.11% dividend. The Truist Financial price objective is $247. The consensus target is $241.90. Essex Property Trust stock closed at $205.88, which was down over 4% on Thursday.

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All seven of these top stocks have reasonable upside to the Wall Street targets, and the companies all pay very dependable dividends, given their Dividend Aristocrat status. With even moderate appreciation in their share prices, investors should be looking at double-digit total return potential. In a market that remains quite long in the tooth despite the horrific results for 2022, and with the economy sputtering, these dependable companies make a ton of sense for nervous investors now.

Note that three of the top-yielding Dividend Aristocrats (3M, Franklin Resources and T. Rowe Price), while solid companies, lack a Buy rating on Wall Street. These stocks could be considered, but if analysts do not like them, there is no reason investors should.

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