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Dividend Aristocrats to Buy This Holiday Season

Thursday, November 14, 2019 08:00 AM | Michael Fowlkes

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Dividend Aristocrats to Buy This Holiday Season

The major markets are all trading just under their 52-week highs as the market remains upbeat on a possible trade deal between the U.S. and China, and a potential boost to the U.S. economy from the Federal Reserve's three interest rate cuts in 2019.

We have seen multiple cases over the last year when the market priced in a potential trade deal only to see stocks move sharply lower as the market realized a trade deal was not going to happen. The same cycle could repeat itself this time around if U.S. and Chinese trade negotiators are not able to reach a middle ground to ink a partial trade deal by the end of the month as both sides have indicated is the current plan.

Given the strength of the overall market, a lot of investors want to keep their money at work in the market, but with such uncertainties in the market and the indexes reaching new highs, it is more important than ever to make sure our investments are in the safest places possible. This makes a solid case for positioning our portfolios in dividend aristocrat stocks.

Dividend aristocrats are stocks that trade in the S&P 500 and have boosted their dividends for a minimum of 25 consecutive years. The market views these stocks as being more stable because the underlying companies have proven an ability to remain consistently profitable and have managed to consistently reward investors with increased payouts year after year.

A selloff in the overall market will hit all stocks, but dividend aristocrats offer a little extra protection due to their perceived stability. Here are a few dividend aristocrats that investors may want to consider picking up this holiday season.

McDonald's (MCD)

Fast food giant McDonald's (MCD) has been serving up dividend increases to investors for the last 42 years. The company has done a fantastic job in recent years attracting foot traffic with a revamped menu featuring all-day breakfast and healthier menu items. McDonald's has also done a good job improving the customer experience with its mobile app that allows customers to order before arriving at locations and having their order ready for pickup when they arrive. The company has shown earnings growth of 13.4% over the last five years and U.S. sales have been on the rise. The stock is currently yielding 2.6% and currently pays a quarterly distribution of $1.25. The company's last dividend increase was announced in September, with the distribution rising 7.8%. Analysts see a lot of upside in MCD, which currently trades at $194.11, with an average price target of $220.19.

AT&T (T)

Telecom leader AT&T (T) is a dividend aristocrat with a 34-year streak of dividend increases. Like most utility stocks, T offers high dividend yield, which currently sits at 5.2%. The telecom sector is not without risks. AT&T has a lot of debt, and the smartphone market is saturated and slow growth. However, the sector also enjoys large barriers of entry that prevent new players from entering the market and posing a significant threat to the current sector leaders. 5G is also on the horizon, and AT&T is one of a small number of companies that will be able to handle the 5G rollout for its customers. This will not only help T keep its customers, but also attract new customers that may be dissatisfied with their current providers ability to keep pace with 5G developments. T stock is one of the riskier dividend aristocrat stocks, but with 5G on the horizon, and the sector massive barriers of entry T and other sector leaders like Verizon (VZ) should remain stable in the years ahead. T stock is currently trading just shy of its 52-week high at $39.17 with an average price target of $38.64.

Cintas (CTAS)

Cintas Corp. (CTAS) provides corporate uniforms. With overall economic conditions in tact with very low unemployment, CTAS has enjoyed strong earnings growth in recent years which is expected to continue moving forward. The company has grown profits 22% annually over the last five years and looking ahead analysts expect earnings to grow 11.5% per annum over the next five years. The company is a dividend aristocrat with a 36-year streak of dividend increases. The stock is currently yielding 0.8%, making it one of the lower yielding stocks, but its stability and strong growth make it an attractive buy in the current economic landscape. CTAS stock is currently trading at $254.50 with an average price target of $268.00.

Walmart (WMT)

Retail giant Walmart (WMT) has a very impressive streak of dividend increases, having boosted its quarterly distribution each of the last 44 years, and the stock is currently yielding 1.8%. The company has managed to boost its U.S. same store sales and increase its online business through big investments in its employees, stores, and e-commerce technology. Walmart has showed modest earnings growth of 0.6% per annum over the last five years, but conditions have improved and looking ahead analysts expect to see the company grow profits at an annual rate of 4.5% over the next five years. Economic conditions remain favorable in the U.S. and consumer confidence remains strong with low unemployment. With the holiday shopping season rapidly approaching and strong consumer confidence Walmart is likely to enjoy a strong holiday shopping season that will push shares higher into the new year. WMT stock is currently trading just shy of its all-time high with a P/E of 27, which is a bit high, but with strong consumer confidence and the company posting better than expected earnings each of the last six quarters the stock looks attractive and should trade higher barring an unexpected earnings miss when the company next reports November 14. WMT is now trading at $120.22 with an average price target of $122.00.

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