Dividend stocks outperformed the broader market in July, offering a potential safe haven amid economic uncertainty. ETFs like NOBL and VIG showed positive returns, driven by companies with a history of increasing payouts.
Wall Street analysts are particularly optimistic about select Dividend Aristocrats, identifying Albemarle (ALB), Air Products and Chemicals (APD), and Walmart (WMT) as stocks with significant upside potential and strong buy ratings.
Investors seeking stability amidst market turbulence may find solace in dividend-paying stocks. While broader markets experienced fluctuations, dividend stocks demonstrated resilience in July. The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) saw a notable increase of nearly 8%, and the Vanguard Dividend Appreciation ETF (VIG) rose approximately 1%. This performance comes as August is historically a challenging month for the S&P 500, which averages only a marginal gain.
Michael Clarfeld, manager of ClearBridge Investments' dividend strategy, emphasized the enduring strength of dividends, stating, "The case for dividends is as strong as it's ever been, given the volatility in the markets, given the uncertainty about what the future looks like, and also given the importance of dividend growth as an offset to inflation that's stickier and higher." However, he cautioned against solely focusing on the highest yields, as an elevated dividend can sometimes signal distress. Dividend Aristocrats, characterized by a history of increasing payouts for at least 25 consecutive years, represent high-quality companies with more predictable returns.
CNBC Pro, in collaboration with FactSet, identified Dividend Aristocrats within the NOBL ETF that are projected to have at least 15% upside to their average price targets. These stocks are also favored by Wall Street, with over 55% of analysts rating them a buy.
Key Stocks to Watch:
Albemarle (ALB)
Despite a 13% decline in July, Albemarle is predicted to rally by 63%, offering investors a 1.4% dividend yield. 58% of analysts rate ALB a buy. Analyst Patrick Cunningham sees significant upside due to structural lithium demand and Albemarle's high-quality assets, believing the current valuation understates its growth potential. The company is expected to report earnings soon.
Air Products and Chemicals (APD)
This industrial gases company boasts the highest yield on the list at 2.5% and has an estimated 17% upside to its price target, with 56% of analysts recommending a buy. Air Products recently reported an earnings beat for its fiscal third quarter, raised its full-year earnings guidance, and lowered capital expenditure guidance, signaling a clear path to continued profitable growth. Shares saw fractional gains in July.
Walmart (WMT)
While Walmart offers a lower dividend yield of 0.9%, it presents a substantial 26% upside to its average price target. 67% of analysts rate Walmart a buy. Despite a slight dip in share price in July and a cautious outlook issued in May, the company's Walmart+ membership achieved a record high in July, according to Morgan Stanley. Analysts at Bernstein suggest buying on pullbacks, citing Walmart's strong fundamental position, price leadership, and convenient offerings. The company is scheduled to report its latest financial results on August 20.
These selections highlight a strategy focused on companies that combine stable dividends with significant growth potential, providing a robust option for investors navigating uncertain economic conditions.
