In what will be known in the future as the pandemic years, the easy money and the government’s spoon-fed liquidity made lots of new investors feel like they were genius and savvy traders. Those that made big money on meme stocks that were retail-driven short-squeeze winners are now finding out the hard way that when the Federal Reserve turns off the money spigot, and interest rates skyrocket to the highest levels in over 15 years, the game becomes a little harder to play.
So now what? When the S&P 500 broke 3,900, it became obvious to many that we could be poised to test the June market lows of 3,636. That is over 200 points away. In addition, top strategists across Wall Street feel that to really hit a hard bottom, we need capitulation in which people just want out at any price. Then, and only then, can the market proceed higher.
The best plan now is to stay in cash. If passive income is required from investments, investors often look for defensive companies paying big dividends, and they may be drawn to the Dividend Aristocrats. The 66 companies that made the cut for the 2022 S&P 500 Dividend Aristocrats list have increased dividends (not just remained the same) for 25 years straight. However, the requirements for membership go even further. Companies must:
- Be worth at least $3 billion at the time of each quarterly rebalancing.
- Have an average daily volume of at least $5 million in transactions for every trailing three-month period at every quarterly rebalancing date.
- Be a member of the S&P 500.
With the potential for massive downside still looming, and interest rates definitely going higher, we thought it would be a good idea to look for companies on the Dividend Aristocrats list that are in sectors that are defensive but look poised to do well the rest of 2022 and next year. Seven stocks hit our screens, all of which are Buy rated at top Wall Street firms. It is important to remember that no single analyst report should be used as the sole basis for any buying or selling decision.
AbbVie
This is a top pharmaceutical stock pick across Wall Street. AbbVie Inc. (NYSE: ABBV) is a global, research-based biopharmaceutical company formed in 2013 following separation from Abbott Laboratories. The company develops and markets drugs in areas such as immunology, virology, renal disease, dyslipidemia and neuroscience.
One of the biggest concerns with AbbVie is what might happen eventually with anti-inflammatory therapy Humira, which has some of the largest sales for a drug ever recorded. The company was concerned, so in June of 2019 it announced that it has agreed to pay $63 billion for rival drugmaker Allergan, the latest merger in an industry in which some of the biggest companies have been willing to pay a high price to resolve questions about their future growth. The purchase officially closed in May of 2020.
The bad news for shareholders is that AbbVie may be nearing the limits of how far it can boost Humira’s price as cheaper competitors come to market, a problem Allergan is already grappling with as more alternatives to Botox emerge.
Investors receive a 3.92% dividend. Morgan Stanley has a $188 target price on AbbVie stock. The consensus target is lower at $158.85, and the stock closed trading on Tuesday at $141.77.
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