Investing in dividend aristocrats, those reliable companies with a track record of increasing dividends year after year can provide stability and growth, which are increasingly important in today’s volatile market. As the AI-driven stock market rally shows signs of losing steam and investor sentiment becomes more uncertain, dividend-paying stocks offer a safe haven for investors.
Despite the impressive performance of some tech giants, the broader S&P 500 Index ($SPX) hasn’t seen much relief this year. It appears that the tech sector is caught in a tug-of-war between rising interest rates and AI enthusiasm. Only time will reveal which force will prevail. If concerns about rate hikes continue to dominate, the tech giants that led the market this year could see significant declines.
In such an environment, dividend aristocrats represent a potentially better and more affordable way to navigate the market’s potential turbulence. These companies have a history of weathering storms, and while their stock prices may have declined recently, their dividends remain stable. It takes more than a “perfect storm” to break the streak of dividend increases that these aristocrats have maintained.
With this in mind, here are three dividend aristocrats worth considering as their yields become more attractive amid recent market volatility.
1. Target
Big-box retailer Target (NYSE:TGT) has experienced a significant decline in its stock price this year, down over 26% year-to-date and 60% from its 2021 peak. The retail sector, especially discretionary-focused and grocery-light retailers like Target, has been hit hard by macroeconomic headwinds. Inflation has prompted consumers to shift towards value-conscious, necessity-heavy retailers like Walmart (NYSE:WMT) and Costco (NASDAQ:COST). Target, although it offers groceries, still has a significant portion of its inventory in non-essential categories.
In addition to the inflation-driven challenges, Target has faced a surge in theft, forcing the closure of nine of its stores and impacting gross margins. The company is taking measures to address this issue, but it has had a noticeable impact on sales.
Despite these challenges, Target trades at an attractive valuation, with a trailing price-to-earnings ratio of 15.2 and a solid dividend yield of 3.93%. Target is not just a dividend aristocrat; it’s a dividend king, with a history of over 50 years of consecutive dividend increases. A turnaround may be on the horizon as consumers recover from the impact of inflation.
2. Nordson
Nordson (NASDAQ:NDSN) operates in the business of dispensing equipment for adhesives, coatings, and sealants. While it may not be the most exciting industry, it offers stability for investors seeking refuge from market volatility. The stock has faced challenges since its late 2021 peak but now presents a modest valuation, trading at 25.7 times trailing price-to-earnings.
Nordson has a strong position in a niche market, providing a moat that could lead to sustained profitability. Despite changing trends in the semiconductor industry, the need for precise fluid dispensing remains constant, which bodes well for Nordson’s business.
While Nordson’s dividend yield is relatively modest at 1.18%, its stable business model and niche market make it worth considering, especially following its recent dip.
3. Realty Income Corporation
Realty Income Corporation (NYSE:O) offers a compelling 6.57% dividend yield and a remarkable 30-year streak of dividend increases. Despite its recent dip and multi-year lows, there’s little reason to believe that Realty Income will break its aristocratic streak.
The company recently increased its acquisition guidance for the year to over $7 billion, indicating a positive outlook. Although this has been a challenging year, there is room for optimism, and Realty Income’s dividend yield is set to reach historically high levels.
While it’s not advisable to chase high yields, Realty Income’s track record of dividend growth speaks for itself. It is likely that the company can weather the current market conditions without resorting to drastic dividend cuts, preserving its impressive multi-decade dividend growth streak.
In conclusion, these three dividend aristocrats offer investors an opportunity to weather market volatility while enjoying the benefits of stable and growing dividend income.
Featured Image: Unsplash @ Max Bender