Investing in a bull market is fun and relatively easy. When the major indexes are hitting new highs seemingly every day, it's easy to find stocks to buy. By contrast, investing in a bear market may not be as enjoyable. But it's necessary, and when you have a strategy it doesn't have to be hard.
One timeless bear market strategy is to buy dividend stocks. And for investors looking to take even more risk out of this strategy, investors can elect to buy a group of stocks known as dividend aristocrats. These are companies that have a history of issuing, and growing, its dividend year – after year – after year. In fact, to be a member of this exclusive group, a company must have increased its dividend every year for at least 25 consecutive years.
In this special presentation, we'll analyze seven dividend aristocrats who are giving investors a good balance between growth and value. This makes them strong additions to your portfolio as part of a defensive strategy to weather a recession.
Here are 7 dividend aristocrats that can help your portfolio thrive in a bear market.
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- Procter & Gamble
- Genuine Parts
- McDonald’s
- Chubb Limited
- Medtronic
- Air Products and Chemicals
- Caterpillar
#1 - Procter & Gamble (NYSE:PG)
Investing in a bear market starts with looking at consumer staples. And when it comes to this sector, there are fewer better options than Procter & Gamble (NYSE:PG). The company operates in five sectors that include recognizable consumer brands such as Head & Shoulders, Herbal Essences, Old Spice, and Secret. A company like P&G has pricing power that helps it pass along costs associated with inflation. And these are products that consumer will seek out even if the economy falls into a recession.
Procter & Gamble’s dividend yield of 2.53% is slightly above the average of the S&P 500 companies. And it has a modest 3-year dividend growth rate of around 6%. However, its earnings are growing at a faster rate than the dividend making this a sustainable growth rate. The company has been raising its dividend for 66 years and currently pays a dividend that amounts to $3.65 per share on an annual basis.
And in case you’re wondering, if you bought PG stock five years ago, you would have been rewarded with share price growth of 64% apart from the growing dividend.
About Procter & Gamble
The Procter & Gamble Company engages in the provision of branded consumer packaged goods worldwide. The company operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers conditioners, shampoos, styling aids, and treatments under the Head & Shoulders, Herbal Essences, Pantene, and Rejoice brands; and antiperspirants and deodorants, personal cleansing, and skin care products under the Olay, Old Spice, Safeguard, Secret, SK-II, and Native brands.
Read More - Current Price
- $170.92
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 15 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $177.00 (3.6% Upside)
#2 - Genuine Parts (NYSE:GPC)
The Covid-19 pandemic has made many investors fans of thematic investing. And one theme that emerged was the increased value of used cars. That brings us to the next dividend aristocrat on this list, Genuine Parts (NYSE:GPC).
Simply put, demand for new cars is likely to wane among lower income consumers. And used car prices remain at historically high levels. This means that consumers are likely to continue maintaining their existing vehicle. That’s good news for shareholders of GPC stock.
Since the pandemic, GPC stock is up 140% and in its 2022 first quarter earnings report, the company posted a 17% year-over-year (YOY) gain in revenue and a YOY increase of over 20% in earnings per share (EPS).
Genuine Parts has been increasing its dividend at an annual rate of about 4%. Plus, the company’s earnings are supposed to grow faster than the dividend which means that the company’s string of 67 consecutive years of dividend increases may be more reliable than the car that you’re keeping maintained through this recession. Well, unless you use Genuine Parts.
About Genuine Parts
Genuine Parts Company distributes automotive replacement parts, and industrial parts and materials. It operates in two segments: Automotive Parts Group and Industrial Parts Group segments. The company distributes automotive replacement parts for hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, recreational vehicles, farm vehicles, small engines, farm equipment, marine equipment, and heavy duty equipment; and equipment and parts used by repair shops, service stations, fleet operators, automobile and truck dealers, leasing companies, bus and truck lines, mass merchandisers, farms, and individuals.
Read More - Current Price
- $120.76
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $139.57 (15.6% Upside)
#3 - McDonald’s (NYSE:MCD)
Some investors avoid consumer discretionary stocks, like restaurants, in a bear market. The belief is that as consumers begin to tighten their belts, they’ll eat at home more. McDonald’s (NYSE:MCD) punched a hole in that theory during the pandemic and continues to deliver strong revenue and earnings even as inflation rises and the outlook for the economy becomes more pessimistic.
The reason for these strong results comes from McDonald’s investing in its digital business before the pandemic. That investment is paying dividends (no pun intended). The company is operating with in-store kiosks and mobile ordering that complements a brisk and increasingly efficient drive-thru business. An expectation of strong consumer demand should allow MCD stock to support a somewhat lofty valuation.
The company’s dividend currently pays out $5.52 per share on an annual basis and is growing at an annual rate of around 7.8%. With earnings growing at a steady pace, investors can count on a growing dividend for years to come.
About McDonald's
McDonald's Corporation operates and franchises restaurants under the McDonald's brand in the United States and internationally. It offers food and beverages, including hamburgers and cheeseburgers, various chicken sandwiches, fries, shakes, desserts, sundaes, cookies, pies, soft drinks, coffee, and other beverages; and full or limited breakfast, as well as sells various other products during limited-time promotions.
Read More - Current Price
- $290.89
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 18 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $319.46 (9.8% Upside)
#4 - Chubb Limited (NYSE:CB)
The next dividend aristocrat on our list, Chubb Limited (NYSE:CB), gives investors exposure to the insurance sector. This is another defensive sector that investors can count on to deliver consistent revenue and earnings no matter what happens in the broader economy. The fact is everybody needs insurance, and Chubb Limited is there to provide it.
As of this writing, CB stock has a price-to-earnings (P/E) ratio of about 10 which means it’s not overvalued and the stock is essentially flat through the mid-part of 2022. That’s no small feat when all of the major indexes are posting double digit losses.
Taking a look at the dividend, Chubb currently pays out $3.32 on an annual basis and has been increasing its dividend payout for 30 years. The dividend yield of 1.69% is not spectacular but is easily supported by the company’s current and anticipated earnings growth. Plus, the price of CB stock has grown 35% over the last five years. The combination of that growth with the dividend growth makes the total return of Chubb Limited attractive in a bear market.
About Chubb
Chubb Limited provides insurance and reinsurance products worldwide. The company's North America Commercial P&C Insurance segment offers commercial property, casualty, workers' compensation, package policies, risk management, financial lines, marine, construction, environmental, medical risk, cyber risk, surety, and casualty; and group accident and health insurance to large, middle market, and small commercial businesses.
Read More - Current Price
- $282.81
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $287.37 (1.6% Upside)
#5 - Medtronic (NYSE:MDT)
Every investor should have some exposure in the healthcare sector. The aging of America continues to be as investable theme as much in 2022 as it was in 1992. And in part because of its dividend aristocrat status, Medtronic (NYSE:MDT) is an appealing option.
Medtronic gives investors exposure to several areas including medical devices, surgical tools and devices, neuroscience, and diabetes treatment. This diversified product offering is one reason the company is attractive to investors.
Another reason is the dividend which the company has increased in each of the last 46 years. It currently pays out $2.72 per share on an annual basis and has a dividend yield of just over 3% which is more than double the sector average. Plus, the company has posted an annualized three-year dividend growth of 8%.
About Medtronic
Medtronic plc develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide. Its Cardiovascular Portfolio segment offers implantable cardiac pacemakers, cardioverter defibrillators, and cardiac resynchronization therapy devices; cardiac ablation products; insertable cardiac monitor systems; TYRX products; and remote monitoring and patient-centered software.
Read More - Current Price
- $84.11
- Consensus Rating
- Hold
- Ratings Breakdown
- 8 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $95.19 (13.2% Upside)
#6 - Air Products and Chemicals (NYSE:APD)
Air Products and Chemicals (NYSE:APD) offers investors exposure to the Materials sector. The company provides atmospheric gases, process and specialty gases, equipment, and services worldwide. In fact, it’s the market’s largest publicly traded chemicals stock. It’s also one of the oldest publicly traded stocks with a history that spans over 80 years.
That being said, APD stock is down nearly 20% in 2022, and by some accounts the stock may still be overvalued. On the other hand, the company is expected to show solid growth in revenue and earnings in the next five years and that should make for safe, steady dividend growth. Speaking of which, Air Products and Chemicals pays an attractive annualized payment of $6.48 per share which currently calculates to a dividend yield of 2.69% which is comparable to the sector average.
About Air Products and Chemicals
Air Products and Chemicals, Inc provides atmospheric gases, process and specialty gases, equipment, and related services in the Americas, Asia, Europe, the Middle East, India, and internationally. The company produces atmospheric gases, including oxygen, nitrogen, and argon; process gases, such as hydrogen, helium, carbon dioxide, carbon monoxide, and syngas; and specialty gases for customers in various industries, including refining, chemical, manufacturing, electronics, energy production, medical, food, and metals.
Read More - Current Price
- $327.85
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 12 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $331.53 (1.1% Upside)
#7 - Caterpillar (NYSE:CAT)
Caterpillar (NYSE:CAT) has had a volatile beginning to 2022. The company entered the year with many analysts expecting the company to be a big winner of the infrastructure bill that passed the U.S. Congress in 2021.
But that optimism was tempered by the outbreak of the war between Russia and Ukraine. And now concerns about inflation and a slowing economy continue to weigh on CAT stock. But the stock is holding its own and is “only” down about 15% for the year.
However, the reason you’re reading this is to find stocks that are likely to deliver a solid total return even in a bear market. Helping Caterpillar’s cause is a juicy dividend that currently pays out $4.44 on an annual basis and has a dividend yield of 2.48%. The company has increased its dividend by approximately 9% in the last three years. And the projected earnings growth over the next five years makes the dividend growth sustainable.
About Caterpillar
Caterpillar Inc manufactures and sells construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives in worldwide. Its Construction Industries segment offers asphalt pavers, compactors, road reclaimers, forestry machines, cold planers, material handlers, track-type tractors, excavators, telehandlers, motor graders, and pipelayers; compact track, wheel, track-type, backhoe, and skid steer loaders; and related parts and tools.
Read More - Current Price
- $381.44
- Consensus Rating
- Hold
- Ratings Breakdown
- 6 Buy Ratings, 7 Hold Ratings, 4 Sell Ratings.
- Consensus Price Target
- $365.33 (4.2% Downside)
Dividend aristocrats make a commitment to grow their dividends. This means investors can focus less on dividend yield and more on the amount of the dividend which is likely to grow. And, for investors who like to reinvest their dividends, a growing dividend allows a portfolio to benefit from the effects of compounding.
However, even though these companies all share many desirable attributes, some stocks are better buys at certain times. The stocks in this presentation are recommendations based on the market conditions that exist at this time. You may prefer to invest in other stocks or sectors.
And that's another reason to limit your search with dividend aristocrats. The list of dividend stocks is long. But the list of dividend aristocrats is significantly shorter. In fact, as of June 30, 2022 there were just 65 companies with this designation.
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