Back to top

5 Top High-Yield Dividend Aristocrats to Buy in June

Read MoreHide Full Article

Summer months in the stock market through June are known to be notorious for sluggish price movements. Last year, Brexit affected the markets while Greece’s debt crisis had rattled the global market in the year before. And prior to that, investors had to bear the brunt of Fed scaling back its stimulus program or a downgrade of America’s credit rating or early signs that the investment banking giant Lehman Bros was on the brink of a collapse.

This time around, if the Congress fails to pass the much anticipated tax reforms, the markets might be in trouble. Fed could also pose a problem for the markets if economic conditions don’t start looking up. Moreover, even if the markets have gained strength on the back of strong earnings growth, it is at a high valuation level. This could restrict the markets from moving further north in the near term.

Lest we forget, financials had already taken a hit after two of the largest U.S. banks signaled at a trading slowdown, while drop in oil prices and FBI Director Comey to testify about President Trump’s confrontations could lead to a market sell-off. With such uncertainty around the corner, investing in dividend aristocrats seems to be prudent. These stocks provide higher returns at lower risks, which are undoubtedly the ‘holy grail’ of investing.

June is Notorious for Sluggish Price Action

The equity market in June is on average flattish, while it is also the fourth worst month in terms of the S&P 500’s performance. While September is historically the worst month, August has been the second followed by February.

Over the last 50 years, the benchmark index has recorded an average return of 0.11% during the month of June. The returns have been fairly evenly split between gains and losses, with the average June advance being 2.39 and the average loss 2.79%. However, the average gain in June is the second lowest in all the 12 months. Take a look at the table on the S&P 500’s average monthly returns over the past 50 years:





























Stock Market’s Summer Concerns

The market isn’t void of risks this June. Following are possible sources of trouble that investors should look out for:

Trump Trade Deflates

Trump terminated and removed FBI Director Comey on May 9, a development that few saw coming. This decision made equity strategists emphasize that the days of Trump trade in the market isn’t anymore. For now, investors should refrain from betting on any quick legislation around trade, budget, healthcare or infrastructure.

According to Michael Arone, Chief Investment Strategist at State Street Global Advisors, “Investors are realizing that the fiscal policy agenda is being pushed out farther on the horizon”. Trump’s pro-business tax, regulation and infrastructural polices are anyhow taking longer to translate into action than investors had hoped.

Fed Rate Hike Amid Soft Economy

The Federal Reserve’s Beige Books said that the economy is still growing at a “modest or moderate” pace, appearing to support a June rate increase. Minutes from the Federal Reserve’s May 2–3 meeting also showed that officials believe that an interest rate hike is in the cards “soon”.

U.S. GDP growth, in the meanwhile, was revised up to 1.2% for the first three months of the year. Despite the uptick, most of Wall Street wasn’t in a celebratory mood as it is still a disappointing outcome, mainly caused by a slowdown in consumer spending and inventories. Analysts noted that data doesn’t signal at a strong rebound in the second quarter and that the Fed had made up its mind about monetary policy long before the GDP figures were released.

Upbeat Earnings Performance, Stretched Valuations

Earnings growth, did, scale to the highest level in over five years during the first quarter. It was also driven across various sectors and not concentrated in one area. But, we shouldn’t forget that U.S. equities have rallied sharply since last November, making them substantially more expensive when compared to profits.

Such equities are very stretched in terms of most valuation measures, which could lead up to a stock market bubble. After all, a highly valued stock market is more likely to result in lower returns.

Financial and Energy Sectors Bleed

Two major U.S. banks, J.P. Morgan Chase & Co. (JPM - Free Report) and Bank of America (BAC - Free Report) expressed caution over weakening trading in the second quarter, which eventually had a negative impact on the broader financial sector. J.P. Morgan’s second-quarter trading is so far down about 15% compared with a year ago, while Bank of America’s second-quarter trading revenue is expected to be down slightly from a year ago.

Energy shares, in the meantime, continued their downtrend with U.S. crude-oil prices dipping below $48 and settling 2.7% lower at $48.32 a barrel. Investors doubt that the extended-production caps by major producers and the summer-driving season in the U.S. won’t do enough to reduce concerns about global supplies.

Buy 5 Best Dividend Aristocrats for Better Returns

With so many concerns on investors’ minds, dividend paying stocks are tempting options at the moment. These stocks have tremendous financial strength and are immune to market vagaries, while stocks that pay dividends are willing to reward shareholders with cash payments.  This is a sign that management is shareholder friendly.

But, why dividend aristocrats? This is because this category of stocks outperforms other dividend payers on better quality business. They have also raked in solid risk-adjusted returns this year, with the S&P High Yield Dividend Aristocrats Index rallying 3.4%.

We have, thus, 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 as well. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McCormick & Company, Incorporated (MKC - Free Report) is engaged in manufacturing, marketing and distributing spices, seasoning mixes, condiments and other flavorful products to the food industry. The company has raised its dividend annually for the past 30 consecutive years.

McCormick has a dividend yield of 1.81%, while its five-year average dividend yield is pegged at 8.53%. The company’s expected growth rate for the current year is 7.8%, higher than the Food - Miscellaneous industry’s estimated gain of 7.7%.

S&P Global Inc (SPGI - Free Report) is a provider of ratings, benchmarks, analytics and data to the capital and commodity markets around the world. The company marked its 43rd consecutive annual dividend increase.

S&P Global has a dividend yield of 1.15%, while its five-year average dividend yield is pegged at 9.27%. The company’s expected growth rate for the current year is 15.2%, higher than the Business - Information Services industry’s estimated rise of 10.2%.

Sherwin-Williams Co (SHW - Free Report) is engaged in the development, manufacture, distribution and sale of paint, coatings and related products. The company has raised its dividend payments for 37 consecutive years.

Sherwin-Williams has a dividend yield of 1.02%, while its five-year average dividend yield is pegged at 19%. The company’s expected growth rate for the current year is 14.4%, higher than the Paints and Related Products industry’s estimated increase of 2%.

3M Co (MMM - Free Report) is a technology company. The company raised its dividend for more than 58 consecutive years, while it has paid dividends for 100 years.

3M has a dividend yield of 2.30%, while its five-year average dividend yield is pegged at 18.28%. The company, which belongs to the Diversified Operations industry, is expected to yield a steady return of 9.3%.

Abbott Laboratories (ABT - Free Report) is engaged in the discovery, development, manufacture and sale of a range of healthcare products. The company has increased its dividend payments for 44 consecutive years.

Abbott has a dividend yield of 2.32%, while it has a positive five-year average dividend yield. The company’s expected growth rate for the current year is 12%, higher than the Medical - Products industry’s estimated rise of 10.3%.

Will You Make a Fortune on the Shift to Electric Cars?                                                                     

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

More from Zacks Analyst Blog

You May Like