These 9 dividend aristocrat stocks could ride out a recession
As talk of a recession increasing, Barron's decided to look for safer investments in the S&P 500 dividend aristocracy index.
Barron's delved into companies with less than 50% debt-to-equity ratios in the index. Rising interest rates could raise borrowing costs for companies, especially if they need to refinance some of their debt—the less debt, the better.
From there, Barron's looked for companies with less than 70% dividend payout ratios. That target, though not all that low, still means companies should have room to keep growing their disbursements along with their earnings.
These nine S&P 500 dividend aristocrats have debt-to-equity ratios below 50% and payout ratios with room to expand.
Another step in the process is to identify the companies that outperformed the $S&P 500 Index (.SPX.US)$ this year through July 5. That's not a very high hurdle, considering that the S&P 500 has returned about minus 19%, including dividends. However, five of the nine companies included in the screen generated positive returns in 2022 as of earlier this week. Two energy juggernauts— $Exxon Mobil (XOM.US)$ and $Chevron (CVX.US)$ —boast the highest yields among these nine stocks.
In addition, the screen requires a dividend yield of at least 2% but avoids stocks with yields above 4.5%. High yields can signal stressful times for a company and its stock, even if dividends are safe.
"Companies that are steady, stable dividend growers do much better in the recessionary environment than companies that just have a high yield," says Peter Fisher, who helps to run the Vanguard Dividend Growth Fund (VIDGX).
All nine of these companies have solid balance sheets, in terms of the percentages of debt in their capital structures. Even if the economy worsens, their dividends should continue to grow.
Source: Barron's, FactSet, Bloomberg
Disclaimer: Past performance can't guarantee future results. Investing involves risk and the potential to lose principal. This article is for information and illustrative purposes only.
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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