Often when income investors look for defensive companies paying big dividends, they are drawn to the Dividend Aristocrats. And with good reason.
Since 1926, dividends have accounted for almost a third of the total return of the S&P 500. Regardless of whether the market is up, down or flat, regular dividend payments from high-quality blue chip stocks provide investors with a much better chance for success. With inflation staying frustratingly strong, and the potential for more stock market turbulence in the fourth quarter, it makes sense to look at quality stocks that pay dependable quarterly dividends.
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. However, the requirements go even further. The following attributes are also mandatory for membership:
- 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.
- They must be a member of the S&P 500.
We screened the list looking for stocks that have either been out of favor, got hit due to a one-off event, or have languished due to indifference from Wall Street analysts. With the downside potential still looming, and interest rates likely staying higher for longer, we thought it would be a good idea to look for companies on the Dividend Aristocrats that pay among the biggest dividends. That is, stocks investors can buy now and hold forever.
Seven top companies hit our screen. These Dividend Aristocrats all are rated Buy across Wall Street by the top firms. Yet, it is important to remember that no single analyst report should be used as the sole basis for any buying or selling decision.
AbbVieThis stock is one of the top pharmaceutical stock picks across Wall Street but has trailed the market this year. 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 eventually happen with the anti-inflammatory therapy Humira. It has some of the largest sales for a drug ever recorded. The company was concerned, so in June of 2019, it announced it had agreed to pay $63 billion for rival drugmaker Allergan. It was the latest merger in an industry where 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. Allergan is already grappling with the problem as more alternatives to Botox emerge. Concerns over the potential for generics in both spaces have kept a lid on shares this year.
Shareholders receive a 4.37% dividend. Morgan Stanley has a target price of $193. The consensus price target is lower at $160.21. The stock closed trading Tuesday at $141.18.
Atmos EnergyThis is a utility stock that struggled some this year but is perfect for conservative accounts looking for income. Atmos Energy Corp. (NYSE: ATO) engages in the regulated natural gas distribution, and pipeline and storage businesses in the United States. It operates in two segments.
The Distribution segment is involved in the regulated natural gas distribution and related sales operations in eight states. This segment distributes natural gas to approximately 3.3 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 provides ancillary services customary 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.
Atmos shareholders receive a 2.78% dividend. BofA Securities has a $130 target price objective. That compares with a consensus target of $125.14 and Tuesday’s closing print of $107.66.
Cardinal HealthThis is a very solid way to play the healthcare sector for more conservative growth and income investors. 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 portfolio of medical products and distributes brand-name products to hospitals and physicians.
Shareholders receive a 2.20% dividend. Morgan Stanley recently reiterated an Overweight rating with a $100 target price. That compares to the lower consensus of $98.58, and Tuesday’s closing print of $91.
Consolidated EdisonThis is another old-school utility stock that 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. It provides gas to approximately 1.1 million customers in Manhattan, the Bronx and parts of Queens and Westchester County. And it provides steam to approximately 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 1 steam-electric generating station and 5 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 provision of energy-related products and services to wholesale and retail customers.
Shareholders receive a 3.70% dividend. The BofA Securities analysts have a price target set at $96, and the Wall Street consensus is at $88. The shares closed Tuesday trading at $87.79.
Essex Property TrustThis stock has been hammered, but 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) an S&P 500 company, is a fully integrated real estate investment trust (REIT) that acquires, develops, redevelops, and manages multifamily residential properties in selected West Coast markets.
Essex currently has ownership interests in 246 apartment communities comprising approximately 60,000 apartment homes with an additional 6 properties in various stages of active development.
Shareholders receive a 4.40% dividend. Royal Bank of Canada’s $255 price objective compares with the slightly lower $243.85 consensus target and Tuesday’s closing price of $213.92.
Realty IncomeThis is another ideal stock for growth and income investors looking for a safer contrarian idea for the rest of 2023 and next year as well. Realty Income Corp. (NYSE: O) is an S&P 500 company dedicated to providing stockholders with dependable monthly income.
The company is structured as a REIT, and its monthly dividends 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 640 consecutive common stock monthly dividends throughout its 54-year operating history and increased the dividend 122 times since Realty Income’s public listing in 1994 and is a top real estate member of the S&P 500 Dividend Aristocrats index.
Investors receive a 6.65% distribution monthly. The Royal Bank of Canada has set its price target at $67. The consensus target is $63.36. The shares closed trading Tuesday at $47.38.
TargetThis company remains a solid and safe retail total return play despite some rough public relations issues earlier this year. Target Corp. (NYSE: TGT) operates as a general merchandise retailer in the United States. The company offers apparel for women, men, boys, girls, toddlers, and infants and newborns. It also offers jewelry, accessories, and shoes, as well as beauty and personal care, baby gear, cleaning, paper products and pet supplies.
Target also provides dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, and food service; electronics, which includes video game hardware and software, toys, entertainment, sporting goods, and luggage; and furniture, lighting, storage, kitchenware, small appliances, home décor, bed and bath, home improvement, school/office supplies, greeting cards, and party supplies, and other seasonal merchandise.
In addition, the company sells merchandise through periodic design and creative partnerships, and shop-in-shop experience; and in-store amenities. Further, it sells its products through its stores; and digital channels, including Target.com.
The company suffered a “Bud Light” moment this year after some merchandising of LGBTQ products struck a nerve with some shoppers. While not as bad as the beer giants conundrum, it still proved to be a huge negative that has seemingly subsided some.
Target shareholders receive a 4.05% dividend. Jefferies has a huge $165 target price. The consensus target is $149.66. The shares closed Tuesday’s session at $110.79.
These seven top Dividend Aristocrats all are trading at very reasonable levels, pay dependable dividends and are solid and safe ideas despite facing some headwinds this year. They will not only likely hold up if the big selling does return, but offer outstanding total return potential in 2023 and 2024 as well.
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