Dividend aristocrats are steady dividend payers that have a long history of hiking their payouts year after year. Undoubtedly, dividend stability and growth could be vital to doing well in this market moving forward, as the artificial intelligence (AI)-driven rally continues to run out of steam and investor hype turns into gloom.
Indeed, when you take the Magnificent Seven stocks out of the equation, the S&P 500 Index ($SPX) hasn't really been feeling that much relief for the year. For now, it seems like all of the tech sector is just a violent tug-of-war between rate hikes and AI enthusiasm. Only time will tell which pulling force triumphs from here. If rate hike fears get the better of the markets, who knows how far this year's tech titans could retreat?
In any event, the best-in-breed dividend aristocrats appear to be a better (and cheaper) way to ride out what could be a stormy finish to the year. Here, we'll look at three top dividend aristocrats that have been under pressure in recent months. Though their yields may be swelling as a result of the pullback in their respective share prices, don't expect cuts to their quarterly payouts anytime soon. Indeed, it can take more than just a “perfect storm” to cause a dividend aristocrat to consider ending its historic streak of dividend increases.
With that in mind, the following dividend stocks are definitely worth keeping on your watchlist as yields move higher with every downward move.
Target
Big-box retailer Target (TGT) should have value investors' targets on its back after the stock's latest slide. Year to date, TGT stock has been a major laggard, sinking over 26%. Since its 2021 peak, just shy of $269 per share, the stock has shed a grand total of 60% — a nasty implosion, indeed.
Macro headwinds have hit the retail scene, with discretionary-heavy and grocery-light retailers taking on more damage than their necessity-heavy counterparts. Target may have decent exposure to groceries - but relative to the competition, it's still too heavy in the nice-to-haves to be spared from the latest inflation-driven carnage hitting most everyday consumers.
Inflation isn't just pushing consumers from the likes of Target to value-conscious, necessity-heavy retailers like Walmart (WMT) and Costco (COST). The soaring cost of virtually everything has caused a shoplifting crisis over at Target, as the company was forced to close nine of its stores amid surging theft. Shrink (or lost inventory) dragged down gross margins by nearly a full percentage point last quarter. That's a major thorn in the firm's side. Add recent store closures into the equation, and the effect of inflation-driven theft has had an even deeper impact in the form of lost sales.
Undoubtedly, theft is a problem for all brick-and-mortar retailers. However, for Target, it seems to be salt in the wounds. The company is taking steps to combat theft. However, having everyday goods under lock and key is a detriment to the customer experience and could have a potential negative impact on sales.
Despite inflation's one-two punch to the chin, TGT trades at a massive discount to its peer group, at 15.2 times trailing price-to-earnings and with a solid 3.93% dividend yield. Target isn't just an aristocrat; it's a dividend king, with over 50 years of consecutive dividend hikes.
One has to imagine a turnaround is closing in, perhaps in the new year, as consumers recover from yet another year complicated by inflation's heavy blow.
Nordson
Nordson (NDSN) is in the business of dispensing equipment for adhesives, coatings, and sealants — a pretty boring business, but a potentially decent one for investors seeking shelter from broader market volatility.
The stock has run into rough waters since peaking back in late 2021. After not doing much over three years, shares are starting to look modestly-valued at 25.7 times trailing price-to-earnings. Though the industry isn't at all hot, Nordson does have a pretty solid moat in a niche market that could yield economic profits for many years to come.
AI disruption or not, Nordson's business model and industry are unlikely to change by a great deal moving forward. If anything, rapidly changing trends in the semiconductor industry could pave the way for stable growth as firms look for better ways to precisely dispense fluids.
With a 1.18% dividend yield, NRSN isn't the most bountiful dividend aristocrat (or king) out there. However, I still think it's worth keeping on your radar after the latest dip.
Realty Income Corporation
Finally, we have Realty Income Corporation (O), which sports a nice 6.57% dividend yield and a dividend raise streak going 30 years strong. Despite falling to multi-year lows after its latest slump, I wouldn't count on the property play to end its aristocratic streak anytime soon.
It's been a dark year, but there is room for hope. The company also hiked acquisition guidance for the year to north of $7 billion. All things considered, shares of O are definitely worth stashing on one's radar as the yield looks to swell to historically elevated levels.
I'm no fan of chasing yield, but O's dividend growth history speaks for itself. And I do think the stock can power through its latest slump without having to punish shareholders further with a big cut, avoiding the potential end of its multi-decade dividend growth streak.
On the date of publication, Joey Frenette 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.
