Wall Street may have seen a Santa Claus rally by the end of last year, but that wasn’t enough to salvage a disappointing year. Investors’ appetite for riskier assets like stocks took a beating in 2018, with the major bourses seeing the worst year since 2008.
Few market pundits could predict such neck-breaking market gyrations in 2018 after an unusually calm 2017. From the U.S.-China trade dispute to slow economic and earnings growth, everything only added to the chaos. The fears that gripped markets in 2018 may continue to reflect in volatile price swings this year. Thus, in order to safeguard your portfolio, investing in dividend aristocrats seems prudent. After all, these stocks provide higher total returns with lower volatility.
But, before we select the stocks let us look at the risks that have sent shivers down investors’ spines of late —
Political Shakiness
Though market bulls hope for progress in U.S.-China trade negotiations, tensions loom large. President Trump continues to threaten a tariff increase on billions of dollars worth of Chinese commodities if China fails to address U.S. demands on economic and political issues. Lest we forget, such tariffs will be paid by American companies and they will invariably pass the cost onto consumers, who account for two-third of U.S.’ GDP.
By the way, Trump’s warnings to lessen the power of the Fed Chair also raise concern. Investors may not like a hawkish Fed, but they certainly want peace and consistency, and threatening the Fed Chair is not inducing any calm.
Amid all these, an U.S. government shutdown is set to stretch this year due to a deadlock between the White House and lawmakers over the President’s intention of securing financing for a wall on the border with Mexico.
At the same time, dysfunction in the United Kingdom has thrown investors for a loop. No one knows what will be the impact of Brexit. In fact, if it rolls out on Mar 29 without a deal, it will most certainly hurt the global economy.
Global Economic Slowdown in the Cards
Thanks to the tax cuts and a solid labor market, the U.S. economy expanded at an annual rate of 4.2% and 3.4% in the second and third quarter of last year. But, the Fed officials now expect growth to moderate over the next couple of years. Fed officials expect the pace of the economic expansion to slow down to 2.3% this year.
The world’s second-largest economy, China, saw the weakest economic growth last year. And this year looks even worse. China’s Markit Manufacturing Purchasing Managers’ Index (PMI) for December dropped to 49.7 from 50.2 in November. This dismal reading on factory output raised concerns over a possible slowdown this year. Brexit, in the meanwhile, could surely rock Britain this year. Thus, threats of a global economic slowdown raised doubts over the longevity of the bull market.
Slower Earnings Growth
Earnings growth, in the meantime, is expected to moderate primarily due to an increase in labor and material costs pinching profit margins. Moreover, corporate profits got a boost last year due to the tax cuts, especially at the beginning of the year. However, its effects have started to wear off, and growth in 2019 doesn’t look much promising.
U.S. dollar has been rising for quite some time now. The US Dollar Index is up nearly 5% this year, hurting profits of America’s multinational companies. This is because a strong dollar certainly makes U.S. products more expensive abroad, dampening overseas sales.
Time to Buy Dividend Aristocrats: 5 Solid Picks
With things not looking too favorable for the stock market at the start of the year, it’s prudent to invest in dividend aristocrats for risk-adjusted returns. These stocks have a solid financial structure and healthy underlying fundamentals. They also outperform other dividend payers on better quality business.
Hence, we have selected five dividend aristocrats to boost your returns. Such stocks also possess a Zacks Rank #2 (Buy). The favorable Zacks Rank should help these stocks gain further this year and beyond as well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
McCormick & Company, Incorporated MKC manufactures, markets, and distributes spices, seasoning mixes, condiments, and other flavorful products to the food industry. The company has increased its dividend payments for 31 consecutive years. It has a dividend yield of 1.6%, while its five-year average dividend yield is 1.9%. The Zacks Consensus Estimate for current-year earnings has increased 0.2% in the past 60 days.
Archer-Daniels-Midland Company ADM procures, transports, stores, processes, and merchandises agricultural commodities, products, and ingredients. The company has raised its dividend payments for more than 25 successive years. It has a dividend yield of 3.3%, while its five-year average dividend yield is 2.6%. The Zacks Consensus Estimate for current-year earnings has moved up 2.3% in the past 60 days.
W.W. Grainger, Inc. GWW distributes maintenance, repair, and operating (MRO) supplies; and other related products and services that are used by businesses and institutions. The company has bumped up its dividend payments for 46 consecutive years. It has a dividend yield of 1.9%, while its five-year average dividend yield is 2%. The Zacks Consensus Estimate for current-year earnings has increased 0.3% in the past 90 days.
Walmart Inc. WMT engages in the retail and wholesale operations. The company’s first dividend was 5 cents a share, paid in 1974. It has consistently raised its dividend each year. It has a dividend yield of 2.2%, while its five-year average dividend yield is 2.6%. The Zacks Consensus Estimate for current-year earnings has increased 0.4% in the past 60 days.
Cintas Corporation CTAS provides corporate identity uniforms and related business services. It has raised its dividend 34 years in a row. It has a dividend yield of 1.2%, while its five-year average dividend yield is 1.1%. The Zacks Consensus Estimate for current-year earnings has increased 1.4% in the past 60 days.
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