Protect Your Returns With These 3 Dividend Kings!

Rick Orford - Barchart - Thu Sep 28, 2023

Central banks are at it again; calls for a longer high-interest rate environment are getting louder. Even with inflation slowing down, central banks have reiterated the need to raise interest rates when needed, as it is too early to call victory. This puts investors on the defensive due to the aftermath of this year's banking crisis, the slow growth, and the threat of another government shutdown. We understand that taking unnecessary risks in this environment is like jumping off a plane without a parachute.

Fortunately, the market offers opportunities to investors who seek it, and this is the environment where elite dividend companies genuinely shine. These companies balance income and growth even during economic uncertainty — the best are Dividend Kings. These top-tier companies have consistently increased their dividend payments for at least 50 years. Talk about consistency! Are you still looking to have exposure in the market but want to maintain being on the defensive? Then these three Dividend Kings may be for you.

Sysco Corporation (SYY)

Sysco Corporation is a leader in distributing food products to restaurants, educational facilities, healthcare, and various establishments. Its operating efficiency ensures a full customer distribution line with food and non-food products. The company is one of the industry's biggest names and has been operating since 1969. Income investors love the company due to its consistent dividend increase for the last 53 years. It currently has a dividend yield of 2.97%.

SYY delivered solid end-of-quarter sales and volume. The company grew its EBITDA by 33.2%, adjusted EPS by 16.5%, and operating income by 26.5%. Sysco's plans to increase efficiency have improved its operating leverage, supply chain productivity, and cost cuts. Its healthy finances and status as a leader in the food service distribution industry highlight why the company is an excellent choice for defensive investors in turbulent economic times. SYY expects to grow even further into fiscal 2024.

Analyst Ratings

Analysts also love SYY and rate it as a “Strong Buy” based on 9 Strong buys and 3 Hold ratings. The mean target price is $87.50, and the high target price is $96.00, representing a possible upside of 47.22%.

PepsiCo Inc (PEP)

PepsiCo, Inc. is a beverage and food company widely known for its product Pepsi. While the company is famous for its beverages, it also offers other popular products like Quaker Oats, Cheetos, Doritos, and Frito Lays. PEP is one of the most recognizable beverage names and is closely associated with a competitor, Coca-Cola. Its robust business model has helped the company weather several economic downturns and consistently increased its dividend payments for the last 51 years. PEP currently has a dividend yield of 2.80%.

PepsiCo completed a solid second quarter with strong business momentum. The company increased its guidance for its organic revenue to 10% for its full fiscal year from its original 8%. PEP also beat earnings estimates by 7.28%, grew its net income by 42.24%, and its sales by 25.08% QoQ. In addition, the company is also aiming to drive sustainability with its pep+ or PepsiCo Positive initiative.

Analyst Ratings

PEP is rated as a “Moderate Buy” based on 7 Strong Buys and 7 Hold ratings. The mean target price is $196.31, and the high target price is $220.00, an upside of 29.74%.

Johnson & Johnson (JNJ)

Johnson & Johnson is a diversified healthcare products company that researches, develops, and manufactures healthcare-related products. The company is well known for products like Band-Aid and Tylenol. It is one of the biggest names in the pharmaceutical industry. JNJ has been a favorite of long-term income investors due to its consistent dividend increase for 61 years, making it one of the longest-running Dividend Kings. It currently has a dividend yield of 2.92%.

JNJ ended its second quarter with a robust performance, with EPS beating estimates by 7.28%, while sales grew by 6.3%. The company’s performance is driven by various catalysts, which include its Kenvue split-off deal to become a two-sector company focused on Pharmaceutical and MedTech innovation. This allows JNJ to further concentrate on key projects in its pipeline and to drive future growth. This makes it one of the best defensive stocks for investors to tilt their portfolios into income investing.

Analyst Ratings

Analysts rate JNJ as a “Moderate Buy” based on 7 Strong Buys, 1 Moderate Buy, and 9 Hold ratings. The mean target price is $179.69, and the high target price is $215.00, representing a potential upside of 36.85%.

Final Thoughts

Navigating the current market landscape has been one of the toughest challenges for investors throughout the year; the high inflation environment with sudden changes in central bank policies has put different markets on edge. Taking a step back and staying defensive may put you in a better position to assess the best efforts rather than catching “opportunities” that may be a dud due to sudden changes in market dynamics.

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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.