With the possibility that the fourth quarter’s economic results might disappoint given the stellar print of Q3, investors may want to consider dividend aristocrats. If you’re looking for some of the best dividend stocks for income, you can’t go wrong with this label. It refers to S&P 500 companies that have increased their payouts to shareholders for at least 25 years.
Fundamentally, the major benefit of dividend aristocrats centers on incentivized performance. No one wants to lead the team that gave up on a run that has gone on for almost three decades. Obviously, it doesn’t look good on one’s resume. Therefore, a clear motivation exists to keep the passive income going, irrespective of outside pressures.
On a related note, this rarefied category enjoys both the business model and acumen to survive multiple market conditions. In the past 25 years, the U.S. equities sector absorbed terrorist attacks, natural disasters, financial collapses and a raging pandemic. If companies are still rewarding their stakeholders after all that, you probably can’t find a better place for dividend stocks to buy for income.
To be sure, every asset category faces risks. Still, if you’re worried about tomorrow, these dividend aristocrats should help you rest easy.
Atmos Energy (ATO)
TELL stock: a row of natural gas tanks pictured in the evening. Natural gas stocks
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Based in Dallas, Texas, Atmos Energy (NYSE:ATO) is one of the largest natural gas-only distributors in the nation. Per its public profile, Atmos serves about three million natural gas distribution customers in over 1,400 communities in nine states. While hydrocarbons may face diminishing popularity, they’re still necessary amid rising population figures and subsequently increased consumption.
As one of the dividend aristocrats, you’re enjoying relative stability combined with the prospect of steady growth. Right now, the company carries a forward dividend yield of 2.9%. While that’s a bit lower than the utility sector’s average yield of 3.75%, the payout ratio is reasonable at 49.6%. Also, the firm enjoys 40 years of consecutive dividend increases, a status it’s jealously protecting.
While not the most attractively priced entity at forward earnings multiple of 17.17x, Atmos prints impressive profit margins. Subsequently, analysts rate ATO a consensus moderate buy with a $122.67 average price target. Further, the high-side target lands at $131, an intriguing idea for dividend stocks to buy for income.
Sysco (SYY)
Sysco (SYY) logo on a sign with company headquarters in Houston in the background.
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A multinational corporation specializing in marketing and distributing food products, Sysco (NYSE:SYY) appeals for those seeking dividend stocks to buy for income. To be sure, its business model isn’t the sexiest in the world. In addition to food services, the company also helps distribute small wares, kitchen equipment and tabletop items to restaurants, healthcare and education facilities, among other establishments.
However, it’s awfully relevant. No matter what happens in the economy, people will travel, people will get sick and they’ll all get tired of cooking at home every single day. Therefore, SYY should benefit from consistent, predictable demand. Unsurprisingly, Sysco – while it doesn’t carry the greatest financial print – is consistently profitable over the past decade.
As one of the most reliable dividend aristocrats, Sysco doesn’t exactly knock it out of the park with its 2.97% forward yield. However, it’s above the consumer staples sector’s average yield of 1.89%. Also, it commands 54 years of consecutive payout increases.
Analysts peg SYY a strong buy with an $80.25 target, projecting over 19% upside.
Coca-Cola (KO)
KO stock PEP stock: a can of Coca-cola and a can of Pepsi on either side of a glass of brown soda and sitting on top of a pile of ice
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Enjoying prominence as a longstanding idea for dividend stocks to buy for income, Coca-Cola (NYSE:KO) deserves to be on your radar. Sure, the underlying products aren’t exactly healthy for you. However, as a producer of caffeinated products found in grocery stores, the brand might benefit from the trade-down effect. Basically, economic pressures may force consumers to look for caffeine alternatives to pricey coffeeshops.
As society normalizes and more companies recall their employees back to the office, Coca-Cola could represent a necessary pick-me-up. Financially, it’s not particularly exciting. For example, it features a forward earnings multiple of 20.35x, which is a bit overvalued. Still, in exchange for that premium, you get a predictable business and sky-high profit margins.
And that of course translates to robust passive income. One of the top dividend aristocrats, the soft-drink giant commands a forward yield of 3.23%. As well, it prints 61 years of consecutive payout increases. Analysts rate KO a moderate buy with a $63.76 target. The high-side target lands at $69.
Johnson & Johnson (JNJ)
A red Johnson & Johnson (JNJ) sign hangs inside in Moscow, Russia.
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Practically a no-brainer on the topic of dividend aristocrats, Johnson & Johnson (NYSE:JNJ) commands extraordinary relevance. Sure, the company spun off its consumer healthcare products unit. However, the enterprise can now focus on its viable medical technologies and pharmaceutical divisions. In fairness, JNJ hasn’t been a great performer this year, losing about 17%. Nevertheless, this could be a discounted opportunity for patient buyers.
Certainly, the immediate circumstances don’t look too hot. Following a generally solid quarterly report, two analysts downgraded their per-share price expectations of JNJ. However, with the sentiment drag, JNJ now trades at a trailing earnings multiple of only 10.96x. For context, the sector median for the drug manufacturing industry comes in at 23.04x.
It remains a consistently profitable enterprise, which helps lift the forward yield to 3.23%. Just as well, the payout ratio sits at only 44.1%, while the company commands 61 years of consecutive dividend increases. That’s reliability you can trust.
Overall, analysts peg JNJ a moderate buy with a $176.95 target, implying almost 20% upside.
NextEra Energy (NEE)
The NextEra Energy (NEE) logo is displayed on a smartphone screen.
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Moving toward the riskier ideas among dividend aristocrats, NextEra Energy (NYSE:NEE) on paper carries an attractive profile. Per its website, NextEra bills itself as one of the nation’s largest capital investors in renewable infrastructure. Combined with the broader political and ideological push for green energy solutions, NEE would seem compelling. Arguably, it very much is but will require substantial patience.
Since the beginning of the year, NEE dropped about 31% of equity value, an obviously steep erosion. Technically speaking, investors must also hope that the rally from early October doesn’t become a dead-cat bounce. As Barron’s pointed out a few days ago, the renewable energy sector has collapsed. Only a few may be ready for a bounce back, adding to the pressure.
Still, if you’re focused on dividend stocks to buy for income, NextEra might be difficult to ignore. It features a 3.27% forward yield with a reasonable payout ratio of 55%. Also, it enjoys 29 years of consecutive dividend increases.
If you want to roll the dice with your dividend aristocrats, big-box retailer Target (NYSE:TGT) might be worth consideration. Granted, the overall high-inflation environment (not withstanding the most recent inflation data) isn’t great for consumer sentiment. So, betting on a retailer carries natural risks. If you don’t think so, just look at the TGT chart. Since the January opener, it fell roughly 27%.
Nevertheless, it’s possible that fading spend in other areas can filter down to the retail segment. For example, the revenge travel phenomenon could be in trouble. But that also might help entities like Target under the trade-down effect. Basically, consumers may spend down for to acquire more bang for the buck in terms of entertainment value. In other words, retail revenge could make a comeback.
To add to the tempting concoction, Target offers a forward yield of 3.99%. Also, the payout ratio is doable at 49.9%, while the company itself enjoys 52 years of consecutive dividend increases. Analysts peg shares as a moderate buy with a $143.69 target, implying 29% upside.
IBM (IBM)
Photo of IBM (IBM) building as seen through the canopy of a tree. IBM logo is in large letters on side of building.
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From a cursory perspective, IBM (NYSE:IBM) couldn’t get more boring if it tried. Yes, it’s a technology stalwart but it’s also a legacy one. These days, seemingly everyone wants to jump on the hype train involving artificial intelligence or the blockchain. But that’s also the underappreciated the narrative of “Big Blue.” It’s been involved in AI for longer than perhaps most other entities.
At only 6% up since the January opener, IBM stock is nowhere near as attractive as some of the three-baggers we’ve seen in the tech space. That said, in the trailing half-year period, IBM gained 22% of equity value. In the past month, it’s up over 8%. Something seems to be cooking and it may be that investors are finally understanding IBM’s incredible acumen in AI along with a host of other innovations.
Also, let’s not forget it’s a top player among dividend aristocrats. Right now, the company offers a forward yield of 4.42%. And while the payout ratio is elevated at 66.79%, it’s not terribly so.
Okay, analysts don’t really see much upside from here. However, if you’re looking for dividend stocks to buy for income, I believe you can trust Big Blue.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
