Next year could be the year for some dividend stocks, according to Wolfe Research. Overall, dividend stocks have underperformed the market this year as investors have found income elsewhere, thanks to near-historic returns in the bond market. Bond yields move inversely to prices. That’s about to change, analyst Chris Senyek predicts. While it’s unclear whether the Federal Reserve will raise interest rates again this year, the market is confident the central bank is done. Fed funds futures pricing data suggests a 96.5% probability that rates will remain unchanged at their current level of 5.25% to 5.50%, according to the CME FedWatch tool. This means an environment in which interest rates remain higher for a longer period of time, followed by rate cuts. “Dividend themes generally performed well following the latest hike in the Fed tightening cycle, with Dividend Aristocrats the best performers,” Senyek wrote in a note Monday. The S&P 500 Dividend Aristocrats Index is made up of companies that have increased their dividends for at least 25 consecutive years. “We attribute this to episodes of risk/slowdown in economic growth that often occur after the last uptick and between the first cut,” he added. In fact, Senyek called Dividend Aristocrats the company’s primary dividend investing strategy. “In times of economic downturn or recessionary backdrop, our preferred dividend-focused strategy is to buy companies with a long history of consistently increasing dividends, i.e. Dividend Aristocrats,” a- he writes. “This cohort of stocks has generally outperformed before and after recessions.” Stocks are concentrated in consumer staples, which make up 25% of the index, and industrial products, which make up 23%, according to Wolfe Research. Materials make up 12%, while financials make up 11% of the index. They also trade as a group at a lower price than the overall market, Senyek pointed out. The relative price-to-earnings ratio of Dividend Aristocrats to the S&P 500 is currently 0.89 times, cheaper than the long-term average of 1.03 times, he said. Here are some of the names in the S&P 500 Dividend Aristocrats Index. Walgreens yields 9.5% but has had a dismal year, with a total return of around -42%. The pharmacy chain, struggling with declining demand for Covid vaccines and tests, has tried to transform itself into a health service provider. In 2021, she became majority owner of primary care company VillageMD. Since then, Walgreens has also acquired Shields Health, a specialty pharmacy, and CareCentrix, a home health provider. CEO Roz Brewer resigned in September and a month later Tim Wentworth was appointed as her successor. Shortly before Wentworth took the helm, Walgreens reported fourth-quarter financial results that fell short of analysts’ expectations and issued moderate profit forecasts. However, the company reported higher revenue than in the quarter. Meanwhile, Coca-Cola beat estimates for its third-quarter earnings and revenue in late October. The drinks giant also raised its outlook for the full year. The shares have a year-to-date total return of -5.97% and a dividend yield of 3.4%. Finally, Medtronic stock has seen a total return of over 4% so far this year. The medical equipment maker reported better-than-expected profits and revenue last week. Medtronic has a dividend yield of 3.4%. For investors who prefer funds, they can also get exposure through the ProShares S&P 500 Dividend Aristocrats exchange-traded fund. The ETF currently yields 2.14%. NOBL YTD Mountain ProShares S&P 500 Dividend Aristocrats ETF — CNBC’s Michael Bloom contributed to this report.
Here’s Why It’s Time to Buy ‘Dividend Aristocrats,’ Says Wolfe Research
