The Federal Reserve has increased its benchmark rate by 25 basis points to 5.1%, continuing its drive to cool inflation. This is the Fed's 10th straight hike; the benchmark rate is the highest in 16 years. However, with the market expecting a pause in its latest policy meeting, the Fed did not mention "Some additional" rate hike being needed, contrary to its previous statement.
According to Chairman Jerome Powell, Fed officials can step back and assess the impact of the higher rates on growth and inflation as well as monitor other factors, including the turmoil in the banking sector, to determine whether it is time to pause the rate increase that which is to be set on a meeting-to-meeting basis. Chair Powell noted, "We may not be far off - or possibly even at that level" when asked if the Fed's key rate was high enough to restrain the economy and curb inflation.
So the Fed Raised Rates, What Now?
With the market and the tone of the Fed shifting towards a pause or potentially a cut shortly, investors should always take a moment to reflect on how this impacts the market. As the market is forward-looking, investors can see signs of movement in stocks and sectors that typically flourish during these environments. One of the common themes has been being defensive due to the high-interest rate and high inflationary environment. This brought about a lot of interest in dividend stocks as they give investors capital appreciation but also an additional stream of income from their dividends. And if we are talking about dividend stocks, investors shouldn’t miss the Dividend Aristocrats.
What are Dividend Aristocrats?
Dividend Aristocrats are S&P500 listed companies that have consistently increased their dividends to shareholders for at least 25 consecutive years. These companies are considered the “cream of the crop” thanks to their reliability and financial stability, which helps generate long-term shareholder value. These companies often have a competitive advantage, are leaders in their respective markets, and receive much love from long-term income investors.
Let’s look at 3 defensive Dividend Aristocrats with attractive yields:
Walgreens Boots Alliance Inc. (WBA)
Dividend Yield: 5.55%
Walgreens Boots Alliance is a consumer staples company that operates in healthcare, pharmacy, and retail. The company has a portfolio of consumer brands, including Walgreens and Boots. Today, WBA offers products in three main segments:
- U.S. Retail Pharmacy
- International
- U.S. Healthcare
The U.S. Retail Pharmacy segment operates retail drug stores and offers health and wellness services. Its international segment operates pharmacy-led health and beauty retail businesses outside the United States. And, the U.S. Healthcare segment is a consumer-centric healthcare business that uses technology to engage consumers across their care journey.
Walgreens Boots Alliance Inc. has an annual dividend yield of 5.55% and boasts a 5-year dividend growth rate of 24.84%. The company has continuously increased its dividends for 47 straight years.
International Business Machines Corporation (IBM)
Annual Divided: 5.23%
International Business Machines Corporation is a technology company that provides hybrid cloud and artificial intelligence (AI) solutions. It offers integrated solutions and products that use data and information technology (IT) in industries and business processes. Its segments include Software, Consulting, Infrastructure, and Financing.
- Software - Consists of two business areas: Hybrid Platform & Solutions, which includes software to help clients operate, manage, and optimize their IT resources and business processes within the hybrid, multi-cloud environments, and Transaction Processing, which includes software that supports clients’ mission-critical, on-premises workloads in various sectors.
- Consulting - engages in business transformation, technology consulting, and application operations.
- Infrastructure - engages in hybrid infrastructure and infrastructure support.
- Financing - engages in client financing and commercial financing business.
IBM’s annual dividend yield is currently at 5.23%, which is rare for technology companies. Moreover, IBM has a 5-year dividend growth of 11.69% and has continuously increased its dividend for 28 years.
Realty Income Corp (O)
Annual Divided: 4.92%
Realty Income Corporation is a REIT. It has more than 12,200 real estate properties around the world. The company was founded in 1969 by William E. Clark, Jr. and Evelyn J. Clark. The company is headquartered in San Diego, California, United States. Interestingly, the company trademarked the phrase "The Monthly Dividend Company" as it pays monthly rather than quarterly dividends.
The company provides its services in all 50 states of the United States, Puerto Rico, the UK, and Spain. It has a massive catalog of well-known and liked clients, such as Walgreens, Tesco, 7-Eleven, FedEx, Home Depot, Sainsbury's, Walmart, and many more. The company’s operations include:
- Asset Management Services
- Development Services
- Property Management and Client Services
- Acquisition and Leasing Services
Realty Income Corporation’s annual dividend yield is currently 4.92%, another rare occurrence for companies of its size and history. Not only that, Realty Income Corporation has a 5-year dividend growth rate of 16.93% and has continuously increased its dividend for 30 years.
Final Thoughts
Investors should never forget that dividend yield is one aspect of a company’s attractiveness. Understanding the business's long-term growth plans, profitability, and financial health is essential, as this gives a holistic view of the potential of being in any investor's long-term portfolio. As always, due diligence should be part of any investor's trading and investment plans, as risk comes slowly and then all at once.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
