10 cheap Dividend Aristocrats to buy on the dip

These Dividend Aristocrats to buy look undervalued – and primed to outperform during a recession.

  • By Mark Reeth,
  • U.S. News & World Report
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As the possibility of a recession continues to grow, investors need to know how to prepare their portfolios for an extended downturn. That’s where a group of stocks known as "Dividend Aristocrats" comes in. These companies are members of the S&P 500 that have increased their dividend payouts for at least 25 consecutive years, providing reliable income to their shareholders through thick and thin. Investing in a company that pays you no matter how the market performs sounds like exactly what investors need right now, and recent market volatility means that many Dividend Aristocrats are cheaper than they’ve been in years. Here are 10 cheap Dividend Aristocrats to buy – each one is well-positioned to survive a recession while paying you a healthy dividend.

General Dynamics

If you’re looking for defensive stocks to protect your portfolio, why not turn to the defense industry? In the 2019 fiscal year, 66% of General Dynamics’ (GD) consolidated revenue came from the U.S. government. That’s great news for General Dynamics shareholders – the government has already budgeted its defense spending for 2020, meaning most of General Dynamics’ revenue for this year is locked-in regardless of how the stock market does. That said, the market’s dip has provided would-be investors with an opportunity to buy General Dynamics on the cheap; shares are down 25% year-to-date. A price-earnings ratio of 11 is less than its historical median of 15.5, and its dividend yield of 3.3% makes it well worth your time to invest in this strong defensive stock.

Genuine Parts Company

When times are tight, consumers tend to cut costs; for instance, rather than buying a new car, cash-strapped consumers will turn to replacement automotive parts providers like Genuine Parts (GPC). Genuine Parts is one of the old-school Dividend Aristocrats, providing dividends to its shareholders since 1948; in fact, it boosted its dividend by 3.6% in February, hiking its payout for the 64th straight year. But the company has taken a serious beating in 2020 – shares are down 38% year-to-date, and its P/E ratio around 15 is less than its 10-year median of 18.6. A low price tag, plus a dividend yield right around 5%, makes GPC, the world’s largest auto parts network, one of the highest quality cheap dividend stocks to buy right now.

Stanley Black & Decker

Speaking of DIY stocks, Stanley Black & Decker (SWK) is the world’s leading supplier of power tools. It’s also one of the world’s leading suppliers of dividends, with 144 consecutive years of dividend payments. Its current dividend yield of 2.7% is lower than that of some Dividend Aristocrats, but Stanley Black & Decker makes up for it with a strong balance sheet and a diversified business. In 2019, the company reduced costs by $200 million and increased its free cash flow by 29% year-over-year. SWK saw sales increase in all three of its business segments. The company's trailing P/E of 16 is 20% below its 10-year median of 20.4.

Lowe’s

Consumers looking for DIY solutions to reduce their spending have one more Dividend Aristocrat to turn to, Lowe’s (LOW). The home improvement store has been improving its operations over the last few years, investing in its e-commerce business and focusing on sales to professional contractors, while closing underperforming stores in Canada and all its stores in Mexico. Shares of Lowe’s are down 27% this year as the market sinks, and the company’s P/E ratio of 16 is trailing its historical median of 21.8. However, LOW’s P/E ratio is still above the industry average, so patient current shareholders may want to wait for the market to make Lowe’s even cheaper before scooping up more – and the company will pay you a 2.5% dividend yield while you wait.

Ross Stores

Recession-proof stocks are great and all, but how about stocks that outperform in a recession? When the rest of the market was floundering in 2008, Ross Stores (ROST) posted record sales and earnings thanks to its focus on off-price apparel, accessories and home goods. Discount pricing, small store footprints and a loyal customer base have made Ross an apparel powerhouse in the years since. Shares are now down 26% year-to-date, and ROST's trailing P/E of 18.5 is modestly below its historical median of 19.8, meaning you can invest for less in a company that pays a 1.3% dividend yield. Ross began offering dividends in 1994, so it only became a Dividend Aristocrat last year – but the newest member of the club is well-positioned to survive and thrive.

Walmart

While other players in retail go into a tailspin with consumers stuck inside, Walmart’s (WMT) investment in improving its e-commerce business is paying off, allowing the company to continue to serve many of its customers without interruption. Walmart weathered the Great Recession with ease and has upped its dividend yield 43% since 2008 as its business continues to improve. Walmart is doing well right now while the rest of the market is down. But shares of Walmart are just barely positive in 2020 and a P/E around 23 is well above its historical value. With a strong business model, solid dividend of 1.8% and widespread reach, Walmart is a sound addition to any defensive portfolio.

Johnson & Johnson

Consumer staples always do well in a recession, and Johnson & Johnson’s (JNJ) brands like Band-Aids, Tylenol and Listerine have been in high demand lately. But while consumers know Johnson & Johnson from their trips to the grocery store, investors should be paying attention to the company’s pharmaceutical division, which accounted for 51% of sales last year. Johnson & Johnson is leading the charge against coronavirus, with the company working alongside the Department of Health and Human Services to develop a vaccine. If Johnson & Johnson does end up creating a viable vaccine, shareholders stand to reap incredible rewards – but while they wait for that (and for the company’s P/E ratio to drop a bit further) they can settle for a 2.8% dividend yield.

Colgate-Palmolive

If you’re looking for strong dividends and strong demand, look no further than Colgate-Palmolive (CL). The maker of toothpaste, hand soap and deodorant, Colgate-Palmolive has consistently been paying investors a dividend since 1895, and the company has increased its dividend payment every year for the last 56 years. CL's diversified business keeps the money coming in, and operating cash flow of over $3.1 billion in 2019 will keep the company insulated against a recession. It will also keep the dividends flowing. With a yield of 2.6%, Colgate-Palmolive is blowing the yield of 10-year Treasurys out of the water. Considering the way the U.S. has been printing money and running up debt recently, Colgate might even be the safer option between the two.

AbbVie

Pharmaceutical companies have always been recession-resistant – consumers can cut back discretionary spending, but they’ll always need their medications. Plenty of people need AbbVie’s meds, especially its bestseller Humira. But AbbVie’s (ABBV) patents for Humira are beginning to expire. To counter the forthcoming loss of revenue, AbbVie is in the midst of finalizing its merger with Allergan (AGN). The combined company will be a pharmaceutical powerhouse with a huge portfolio of drugs and an estimated $48 billion in combined 2019 revenue. AbbVie’s dividend yield of 6.2% will keep shareholders happy while they wait for the ink to dry. With a P/E ratio around 14, that’s well below AbbVie’s historical value of 20.3. That makes this a great time for investors to buy.

Walgreens Boots Alliance

While AbbVie makes the medicine, Walgreens Boots Alliance (WBA) gets it to the customer. Those customers have been flocking to Walgreens stores in droves to stock up on essentials, sending comparable store sales up 26% in the first three weeks of March. But according to a company report, after March 21 sales declined dramatically, and Walgreens executives are unsure when discretionary spending will recover. In the meantime, the company’s pharmaceutical branch remains strong, with sales up 3.8% year-over-year in its most recent quarter. A trailing P/E of 10.7 compared with its historical value of 17.7 makes Walgreens cheaper than any essential business should be. WBA's 4.4% dividend yield is especially attractive for defensive investors.

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