We follow the bond market closely at 24/7 Wall St., and for almost a year now there has been an inversion (or difference in yield) between the two-year Treasury paper and the benchmark 10-year note. History has shown every time this has happened that a recession is on the way. The interesting aspect is that an inversion can stay in place for up to a year or more before the recession shows up. Reuters pointed out back in July that this yield curve has inverted six to 24 months before each recession since 1955, citing a 2018 report by researchers at the San Francisco Federal Reserve, offering only one false signal in that time. The spread between two-year and 10-year Treasuries has been inverted since last July, so we are well past the one-year mark.
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The recession could come early next year, and it is likely the first quarter could be the start when gross domestic product (GDP) turns negative. A recession by definition is two consecutive quarters of negative GDP. While we had a mild and short-lived recession during the COVID-19 pandemic and lockdown, many feel that what is coming could be deeper and last longer.

With the potential for massive downside still looming, and interest rates possibly going even higher, we thought it would be a good idea to look for companies in the Dividend Aristocrats that pay among the biggest dividends in the sectors that typically do well during a recession.

Consumer staples, health care, and utilities tend to fare better during recessionary periods as they provide, in many cases, essential items and services that people depend on regardless of economic conditions. We screened the Dividend Aristocrats and found eight top companies that fit the bill in a big way.

The 67 companies that made the cut for the 2023 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. But the requirements go even further. The following attributes are mandatory for membership on the aristocrats list:

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

While the following stocks are rated Buy across Wall Street, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Consumer Staples

Coca-Cola

This stock not only offers safety but comes with an incredibly strong worldwide brand with 40% overseas sales. Coca-Cola Co. (NYSE: KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. It remains a top Buffet holding, as he owns a massive 400 million shares.

Led by Coca-Cola, one of America’s most trusted food and drink brands, 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 3.10% dividend. Citigroup has a $74 target price on Coca-Cola stock. The consensus target is $69.97. The closing price on Wednesday was $58.78 per share.

This top dividend payer is a very safe play for investors. Colgate-Palmolive Co. (NYSE: CL) manufactures and sells consumer products worldwide. The company operates through two segments.
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The Oral, Personal and Home Care segment offers toothpaste, toothbrushes, mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants, skin health products, dishwashing detergents, fabric conditioners, household cleaners and other related items. It markets and sells its products under various brands, including Colgate, Darlie, Sorriso, Tom’s of Maine, Irish Spring, Palmolive, Softsoap, Lady Speed Stick, Speed Stick, EltaMD, Filorga, Ajax, Axion, Fabuloso, Murphy, Suavitel, Soupline and Cuddly, to a range of traditional and e-commerce retailers, wholesalers and distributors. It also includes pharmaceutical products for dentists and other oral health professionals.

The Pet Nutrition segment offers pet nutrition products for everyday nutritional needs under the Hill’s Science Diet brand, as well as a range of therapeutic products to manage disease conditions in dogs and cats under the Hill’s Prescription Diet brand. This segment markets and sells its products through pet supply retailers, veterinarians and e-commerce retailers.

Colgate-Palmolive stock investors receive a 2.62% dividend. The Deutsche Bank price target is $91, well above the consensus target of $84.41 and Wednesday’s close at $72.32.

J.M. Smucker

Anybody who has ever had a peanut butter and jelly sandwich has likely used one of this company’s products. J.M. Smucker Co. (NYSE: SJM) manufactures and markets branded food and beverage products worldwide.

The company offers mainstream roast, ground, single-serve, and premium coffee; peanut butter and specialty spreads; fruit spreads, shortening and oils and frozen sandwiches and snacks; pet food and pet snacks; and foodservice hot beverage, foodservice portion control and flour products, as well as dog and cat food, frozen handheld products, juices and beverages, and baking mixes and ingredients.

J.M. Smucker also provides its products under the Meow Mix, 9Lives, Kibbles n Bits, Milk-Bone, Pup-Peroni, Rachael Ray Nutrish and Nature’s Recipe, Folgers, Café Bustelo, Dunkin’, Café Bustelo, 1850, Jif, Smucker’s, Smucker’s Uncrustables, Robin Hood and Five Roses brands.

The company sells its products through direct sales and brokers to food retailers, club stores, discount and dollar stores, online retailers, pet specialty stores, natural foods stores and distributors, drug stores, military commissaries and mass merchandisers.

Shareholders receive a 2.98% dividend. BofA Securities has set a $170 target price, and J.M. Smucker stock has a $151.55 consensus target. Wednesday’s closing print was $141.13.

Health Care

Abbott Laboratories

This is a top pharmaceutical and med-tech stock with very solid growth potential. Abbott Laboratories (NYSE: ABT) manufactures and sells health care products worldwide.
Abbott’s Established Pharmaceutical Products segment offers branded generic pharmaceuticals to treat pancreatic exocrine insufficiency; irritable bowel syndrome or biliary spasm; intrahepatic cholestasis or depressive symptoms; gynecological disorders; hormone replacement therapy; dyslipidemia; hypertension; hypothyroidism; Ménière’s disease and vestibular vertigo; pain, fever and inflammation; migraines; anti-infective clarithromycin; cardiovascular and metabolic products; and influenza vaccines, as well as to regulate physiological rhythm of the colon.
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The LabsDiagnostic Products segment provides immunoassay and clinical chemistry systems; assays used to screen and/or diagnose cancer, cardiac, drugs of abuse, fertility, infectious diseases and therapeutic drug monitoring; hematology systems and reagents; diagnostic systems and cartridges; instruments to automate the extraction, purification and preparation of DNA and RNA from patient samples, and detects and measures infectious agents; genomic-based tests; informatics and automation solutions; and a suite of informatics tools and professional services.

the dividend yield here is 1.98%. The $132 Barclays price target is higher than the consensus target of $124.44. Abbott Laboratories stock ended Wednesday’s session trading at $101.56.

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 stock comes with a 2.29% dividend. Morgan Stanley recently reiterated its Overweight rating with a target price of $100. The consensus target is $97.65, and Wednesday’s closing share price was $87.25.

Johnson & Johnson

With a diverse product base and a very popular and solid brand, this is among the most conservative big pharmaceutical plays and is the only big pharma stock in the Berkshire Hathaway portfolio. Johnson & Johnson (NYSE: JNJ) researches, develops, manufactures and sells various products in the health care field worldwide.

Its Consumer Health segment offers baby care products under the Johnson’s and Aveeno Baby brands; oral care products under the Listerine brand; skin health/beauty products under the Aveeno, Clean & Clear, Neutrogena and OGX brands; acetaminophen products under the Tylenol brand; cold, flu and allergy products under the Sudafed brand; allergy products under the Benadryl and Zyrtec brands; ibuprofen products under the Motrin IB brand; smoking cessation products under the Nicorette brand; and acid reflux products under the Pepcid brand.

This segment also provides women’s health products, such as sanitary pads and tampons under the Stayfree, Carefree, and o.b. brands; wound care products comprising adhesive bandages under the Band-Aid brand; and first aid products under the Neosporin brand.

The Pharmaceutical segment offers products in various therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension and cardiovascular and metabolic diseases.
Its Medical Devices segment provides electrophysiology products to treat cardiovascular diseases; neurovascular care products to treat hemorrhagic and ischemic stroke; orthopedics products in support of hips, knees, trauma, spine, sports and other; advanced and general surgery solutions that focus on breast aesthetics and ear, nose and throat procedures; and disposable contact lenses and ophthalmic products related to cataract and laser refractive surgery under the Acuvue brand.

Shareholders receive a 2.96% dividend. Johnson & Johnson stock has a $186 price target at Wells Fargo. That compares with the $182.29 consensus target and the close at $158.01 on Wednesday.
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Utilities

Atmos Energy

This utility stock is perfect for conservative investors looking for income. Atmos Energy Corp. (NYSE: ATO) engages in the regulated natural gas distribution and pipeline and storage businesses in the United States.

Its Distribution segment is involved in the regulated natural gas distribution and related sales operations in eight states. This segment distributes natural gas to approximately 3 million residential, commercial, public authority and industrial customers. As of September 30, 2022, it owned 73,243 miles of underground distribution and transmission mains.

The Pipeline and Storage segment engages in the pipeline and storage operations. This segment transports natural gas for third parties and manages five underground storage reservoirs in Texas. It also provides ancillary services to the pipeline industry, including parking arrangements, lending and inventory sales. As of September 30, 2022, it owned 5,652 miles of gas transmission lines.

The dividend yield is 2.64%. The BofA Securities price objective is $130. The consensus target for Atmos Energy stock is $127.33, and Tuesday’s closing print was $112.27.

Consolidated Edison

This old-school utility stock offers income investors the stability and track record many seek now. Consolidated Edison Inc. (NYSE: ED) offers electric services to approximately 3.5 million customers in New York City and Westchester County; gas to around 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County; and steam to about 1,700 customers in parts of Manhattan.

Consolidated Edison owns 62 area distribution substations and various distribution facilities; 39 transmission substations and 62 area stations; electric generation facilities with an aggregate capacity of 724 megawatts that run on gas and fuel oil; 4,348 miles of mains and 369,791 service lines for natural gas distribution; and one steam-electric generating station and five steam-only generating stations.

The company operates 572 circuit miles of transmission lines; 14 transmission substations; 86,794 in-service line transformers; 3,994 pole miles of overhead distribution lines; and 1,889 miles of underground distribution lines, as well as 1,867 miles of mains and 105,482 service lines for natural gas distribution. In addition, it is involved in the sale and related hedging of electricity to retail customers, and the provision of energy-related products and services to wholesale and retail customers.

Investors receive a 3.67% dividend. The $96 BofA Securities price target is well above the $88.86 consensus target. On Wednesday, Consolidated Edison stock was last seen trading at $86.80.

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All eight of these stocks have reasonable upside to the Wall Street targets, and they all pay very 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 over the next 12 months. In a market that is very volatile and could be headed much lower, especially if the potential recession is worse than expected, these safe stocks may make a ton of sense to move to now.

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