In these uncertain economic times, having certainty in our investment portfolios is a welcome relief. However, not all value stocks are created equal when it comes to weathering a recession. One effective strategy is to focus on companies that have recently demonstrated the ability to grow their dividends. In a time when other businesses are fearful of a cash crunch, increasing payouts reflects a confident stance. Even more promising is investing in the esteemed "dividend aristocrats," companies that have consistently raised their dividends for an impressive 25 years.

While the economy and the market have demonstrated resilience throughout the year, recession concerns still loom on Wall Street. Following Federal Reserve Chair Jerome Powell's speech at Jackson Hole last week, many experts predict that interest rates will remain elevated for an extended period. This projection is likely to create downward pressure on growth-oriented stocks, consequently making value-oriented names all the more appealing.

Delving Deeper into Recession-Proof Investments

Dividend Aristocrats: A Wise Investment During Economic Downturns

The current cohort of stocks known as dividend aristocrats has a historical track record of outperforming during recessions, according to Chris Senyek, chief investment strategist at Wolfe Research. While the dividend aristocrats may not offer the most exciting yield, at 2.5%, when compared to short-term Treasury bills yielding more than 5%, they do provide a secure investment option. Moreover, their price-to-earnings ratio relative to the S&P 500 is currently at a discounted level of 0.95x, slightly below the 10-year average of 1.03x, indicating that these stocks are relatively cheap.

Out of the companies listed in the S&P 500, there are 67 that qualify as dividend aristocrats, with a significant portion hailing from the industrial and consumer staples sectors. For investors looking to narrow down their investment choices, a focus on companies that are not only dividend aristocrats but have also consistently bought back shares over the past decade could be beneficial. This strategy reflects a commitment to returning capital to shareholders.

Based on this criteria, Senyek has identified 13 companies that meet the mark:

  1. Lowe’s (LOW)
  2. Genuine Parts (GPC)
  3. Walmart (WMT)
  4. Colgate-Palmolive (CL)
  5. Aflac (AFL)
  6. Cardinal Health (CAH)
  7. Expeditors International of Washington (EXPD)
  8. C.H. Robinson Worldwide (CHRW)
  9. Emerson Electric (EMR)
  10. A.O. Smith (AOS)
  11. Illinois Tool Works (ITW)
  12. W.W. Grainger (GWW)
  13. Automatic Data Processing (ADP)

These companies not only have a strong history of maintaining their dividends but also demonstrate a commitment to enhancing shareholder value through share buybacks. Considering their track record and the current economic climate, dividend aristocrats may prove to be an attractive long-term investment option.

Dividend and Buyback Yields Show Promising Returns

On average, the companies analyzed in this study have demonstrated a dividend yield of 2% and an impressive buyback yield over the last 12 months, averaging 5%. Taking into account historical data, this suggests a remarkable total yield of 7%.

This significant information is undoubtedly exciting for investors seeking profitable opportunities.

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