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3 Defensive Dividend Aristocrats to Protect and Dominate in 2024

Rick Orford - Barchart - Fri Sep 27, 6:00PM CDT

By their very nature, defensive stocks are some of the most sought-after companies for income portfolios. These businesses are rooted in established, non-cyclical sectors proven to weather economic downturns like cliff faces standing against the inevitable tide.

Now, mix that concept with Dividend Aristocrats—S&P 500 listed companies that have paid increasing dividends for 25 or more consecutive years—and you have a recipe for, perhaps the perfect defensive income stock.

So, today, I'll cover the top three defensive Aristocrats you can add to your long-term portfolio.

How I Came Up With The Following Stocks

To start the analysis, I opened my Dividend Aristocrats watchlist, courtesy of Barchart Watchlist, and then screened the companies there using the following filters through the Stock Screener:

Dividend Payout Ratio: 50% or less. The dividend payout ratio measures how much the company’s after-tax earnings go to shareholders as dividends. 30 to 50% is the generally accepted range. Any higher than that, the company might have issues maintaining increased dividend payouts. Remember, a high dividend payout ratio can be an early warning sign for dividend royalty who are about to lose their title.
Current Analyst Ratings: 4 (Moderate Buy) to 5 (Strong Buy). Looking for support from Wall Street is never a bad thing when looking for potential stock picks.
Market Sectors: Consumer Staples, Medical, and Utilities. I chose these sectors precisely because they’re non-cyclical and recession-proof. That means if there aren’t any major upheavals in the sector or the company itself, these businesses can always be expected to generate reliable revenue.
Annual Dividend Yield: Left blank so it appears on the results for sorting.

After adding these filters, I clicked “See Results” and got five companies.

I arranged the results from highest to lowest dividend yields. So, I'll start with the highest-yielding defensive Dividend Aristocrat today.

Sysco Corporation (SYY)

Sysco Corporation is a global leader in selling, marketing, and distributing food products to restaurants, healthcare and educational facilities, hospitality businesses, and other customers who prepare meals away from home. It also offers various food categories, including specialty and “foodie” products. The company operates through a vast network of distribution centers, serving customers in various sectors across different regions. Its extensive supply chain and logistics network make it a key player in the food service industry.

In FY 2024, Sysco increased its quarterly dividends by 1 cent, making it 51 cents per share quarterly, or $2.04 annually. This might seem paltry to some, but Executive Vice President and CFO Kenny Cheung promises investors a 4-cent increase for fiscal year 2025.

In any case, Sysco’s current payout reflects a 2.62% yield based on SYY stocks' current trading price, while maintaining a relatively healthy 46.10% dividend payout ratio. SYY stock also has a strong buy rating based on 15 analysts.

Atmos Energy Corporation (ATO)

Atmos Energy Corporation is one of the largest natural gas-only distributors in the United States. It distributes natural gas to residential, commercial, industrial, and public authority customers. The company operates in multiple states and supplies energy through an extensive pipeline network. Atmos Energy also engages in pipeline and storage operations and continues to invest in safe and reliable natural gas transportation and storage technologies.

Atmos is proud of its 38-year streak of increased dividend payouts. Its $3.24 per share dividend reflects a 2.37% yield. However, interested investors might be happy to know they’re just in time for the company’s annual dividend increase announcement which, if history is to repeat itself, every November. Currently, Atmos Energy returns 46.15% of its earnings to shareholders.

Meanwhile, analysts rate ATO stock a moderate buy and maintain a high target price of $145. ATO stock had an excellent run in 2024, with the stock's trading price increasing 18.01% year-to-date, and no signs of slowing down.

Abbott Laboratories (ABT)

Abbott Laboratories is one of the biggest healthcare companies in the world. It has a massive global presence and a diversified product portfolio that includes drugs and medical equipment for cardiovascular conditions, nutrition, and diagnostics.

Abbott Labs is also one of the rare companies that can lay claim to the Dividend Aristocrat, King (50+ years of increases), and Zombie (100+ years of dividends) status. The company has paid dividends for 403 consecutive quarters and raised them for 52 straight years, with another potential increase slated for December/January this year. Currently, it pays 55 cents quarterly, translating to a $2.20 annual rate and a 1.95% yield based on current prices.

I’ve mentioned it before, but a recent study by Professor Hendrik Bessembinder using data from March 1937 to December 2023 found that Abbott is the top healthcare stock in terms of long-term returns.

I guess it’s no wonder 15 out of 22 analysts give ABT stock a strong buy recommendation, bringing its average score to 4.45 (moderate buy), a hairsbreadth away from a 4.50 overall strong buy score.

Conclusion

I’ve been trading stocks for more than half my life, and I’d like to make a little addendum to the time-worn adage: the only thing in life that's certain is death and taxes. I'd now like to add market downturns.

Adding defensive Dividend Aristocrats to your long-term portfolio can be a great way to protect yourself from such inevitable crashes. And, regardless of a market crash, even when it does happen next (and it will), dividend income from mature, established companies will most certainly help soften the blow.

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On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.