Dividend stocks are widely appealing for investors, particularly those with a low risk tolerance. And with the S&P 500 Index down 15% year-to-date, along with the prospect of a looming recession, it is a good time for investors to get defensive.
Dividend Aristocrats, defined as stocks in the S&P 500 Index that have raised their dividends for 25 consecutive years or longer, have the ability to increase their dividends during recessions. This article will discuss 3 quality Dividend Aristocrats with low volatility and recession-proof dividends.
Aflac Inc. (AFL)
Aflac is a financial sector stock operating in the insurance industry. Aflac operates in the U.S. and Japan, with approximately 70% of the company’s annual revenue coming from Japan. The company provides supplemental insurance that protects policy holders in the event that they get sick or injured and cannot pay their bills.
The company is generating strong results so far in 2022. First-quarter revenue of $5.27 billion declined just 0.2% year-over-year. On an adjusted basis, earnings-per-share equaled $1.42 versus $1.51 prior. Both revenue and earnings-per-share came in ahead of estimates.
Going forward, Aflac should return to growth due to its industry-leading brand. The company should continue to grow organically. Earnings-per-share growth will be boosted by the company’s aggressive share buybacks. Aflac repurchased 8 million shares at an average price of $62.50 during the quarter. The company has 47.8 million shares, or 7.3% of its outstanding share count, remaining on its repurchase authorization.
Aflac has increased its dividend for 40 consecutive years, and the stock currently yields 2.6%.
McDonald’s Corporation (MCD)
McDonald’s is a prime example of a recession-proof dividend stock. It has one of the most recession-resistant businesses in the United States. McDonald’s is the largest publicly-traded restaurant company, with more than 40,000 worldwide locations. Over 90% of McDonald’s restaurants are owned by franchisees. The push to increase franchise ownership gives McDonald’s lower sales, but higher earnings as franchised-operated stores produce higher profit margins for McDonald’s.
McDonald’s has increased its dividend each year since the company went public in 1976. This equates to more than 40 years of annual dividend hikes. The reason for this is McDonald’s strong brand and focus on low price offerings, combined with the fact that consumers shift their dining spending downward during recessions.
The company is performing as expected in 2022. In the second quarter, McDonald’s posted revenue of $5.72 billion, down 2.7% year-over-year. Global comparable sales increased 9.7%, reflecting positive comparable sales across all segments. The U.S. increased 3.7%. Adjusted earnings-per-share of $2.55 beat expectations by $0.08 per share.
The stock has a 2.1% dividend yield.
Atmos Energy (ATO)
Atmos Energy operates in the utility sector, making it a good pick for risk-averse investors as utility stocks have long held the reputation as steady dividend stocks. Atmos Energy is no different; it has increased its dividend for 38 years. The company distributes and stores natural gas in eight states, serves over 3 million customers, and should generate about $3.7 billion in revenue this year.
Atmos reported second quarter earnings on May 4th, 2022, and results were better than expected on both the top and bottom lines. Earnings-per-share came to $2.37, which was two cents ahead of estimates. Revenue soared 25% to $1.65 billion, beating expectations by $260 million. Consolidated operating income was up $3.3 million to $385 million year-over-year. Growth was due to rate outcomes in both segments and customer growth.
The company can achieve this growth through continued improvements in gross margin, reductions in operating costs as a percentage of revenue, and top line growth via acquisitions as well as customer growth. Along with margin improvements, Atmos should be able to produce mid-to-upper single-digit earnings-per-share growth annually.
The company’s competitive advantage is in its wide distribution area and lack of direct competition in its service areas for residential and commercial customers. In addition, discretionary use of natural gas is low as people use what they need, regardless of economic conditions, meaning Atmos’ recession performance is likely to be resilient.
Atmos Energy stock yields 2.3%.
Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.
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