The world's eyes are on the Middle East again during one of the darkest hours of the region. Tensions broke into declarations of armed conflict as Hamas, the militant group that holds the Gaza Strip, launched an unprecedented attack on Israel, with the latter promising “significant military steps” as retaliation. This shocking event has put the world on the defensive, which boosted safe-haven assets like gold, treasuries, and the dollar, as investors lean more on the defensive side during such market uncertainties.
How do you go on the defensive?
One of the most common strategies stock investors use when looking to protect their portfolio is to move into sectors that are in businesses that are non-cyclical or less prone to economic cycles. They can be stocks in public utilities, healthcare, and those that sell essential items. To maximize this strategy, you can also look at only stocks with a steady stream of dividends, like those considered Dividend Aristocrats.
What are Dividend Aristocrats?
Dividend Aristocrats have consistently raised their dividends yearly for the last 25 years. This consistent dividend increase ensures that their shareholders get growing value each for investing, all of which need a solid business model to support it. Now let’s look at three Dividend Aristocrats that you can be part of your defensive portfolio.
AbbVie Inc. (ABBV)
AbbVie Inc. is a research-based biopharmaceutical company that researches, develops, and manufactures various medicines. The company resulted from a spinoff from its parent company, Abbot Laboratories. Some of its popular medications are Botox, Imbruvica, and Humira.
The company has been a steady performer, and its latest earnings beat analyst estimates by 4.30% while sales grew by 13.42% QoQ. ABBV’s dividend yield is currently at 3.92%, with a dividend payout ratio of 45.36% and a 120.31% 5-year dividend growth rate. AbbVie has consistently increased its dividends for 51 years.
Analyst Ratings
Analysts rate ABBV as a "Moderate Buy" based on 7 Strong buys, 2 Moderate buys, and 8 Hold recommendations from analysts. The mean target for ABBV is $173.57, and its high target is $195.00, an upside of 30.78%.
Johnson & Johnson (JNJ)
Johnson & Johnson is a diversified healthcare products company that is no stranger to long-term and defensive investors. It is a household name and a manufacturer of popular products like Band-Aid, Listerine, and Johnson's Baby Powder. The company later went into the pharmaceuticals and medtech segments in the healthcare industry. Its solid business model and long history have made it one of the behemoths in the sector.
JNJ’s most recent financials have shown the company’s resilience even with a slow-growth, high-inflation economy and its recent legal troubles. Its most recent earnings beat analyst estimates by 7.28% while sales grew by 3.17% QoQ. JNJ's dividend yield is 2.93%, with a dividend payout ratio of 43.53% and a 34.04% 5-year dividend growth rate, and the company has consistently increased its dividends for 61 years.
Analyst Ratings
Analysts rate JNJ as a “Moderate Buy” based on 7 Strong buys, 2 Moderate buys, and 9 Hold recommendations. The mean target for JNJ is $179.59, and the high target is $215, a potential upside of 35.61%.
Consolidated Edison, Inc. (ED)
Consolidated Edison, Inc. is a holding company in the energy sector. Its subsidiaries provide regulated electric utility services across New York City and gas services in the Bronx, Manhattan, and Queens. One of its subsidiaries, Con Edison Transmission, is focused more on clean and renewable energy to meet the company’s sustainable goals. Con Edison’s projects are concentrated in the New England, Midwest, New York, and mid-Atlantic areas.
Being in the utility sector makes Consolidated Edison one of the go-to companies for defensive investors, with its stable business model and a modest dividend yield of 3.68%. ED also has a dividend payout ratio of 64.99%. ED has consistently increased its dividends for 49 years.
Analyst Ratings
Analysts rate ED as a “Moderate Sell” based on 1 Strong Buy, 5 Holds, and 6 Strong Sells. The mean target for ED is $88.31, and the high target is $103.00, a possible upside of 17.65%. While analysts mostly lean towards a sell recommendation, we think ED still holds a spot on a defensive portfolio due to its history, nature of business, and consistently growing dividends.
Final Thoughts
Tilting portfolios to dividend stocks or defensive sectors has always been a generally followed strategy by investors during uncertain times. While this may be the case for most, it is still best practice to look at each company closely to better understand the risks that come with it.
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.
