Next year could be the year for certain dividend stocks, according to Wolfe Research. As a whole, dividend stocks underperformed the market this year as investors found income elsewhere, thanks to near historic yields in the bond market. Bond yields move inversely to prices. That’s about to change, predicted analyst Chris Senyek. While it is unclear whether the Federal Reserve will hike interest rates one more time this year, the market is convinced the central bank is done. Fed funds futures pricing data suggests a 96.5% probability that rates will stay unchanged at their current 5.25%-5.50%, according to the CME FedWatch Tool . That means an environment where interest rates are higher for longer, followed by rate cuts. “Dividend themes generally performed well after the final hike in a Fed tightening cycle, with Dividend Aristocrats performing the best,” Senyek wrote in a note Monday. The S & P 500 Dividend Aristocrats Index is composed of companies that have increased dividends for at least 25 consecutive years. “We attribute this to risk off episodes/economic growth slowing that often occurs after the last hike and between the first cut,” he added. In fact, Senyek called dividend aristocrats the firm’s top dividend investment strategy. “During economic slowdowns or recessionary environments, our favorite dividend focused strategy is buying companies with a long track record of consistently increasing dividends, a.k.a., dividend aristocrats,” he wrote. “This cohort of stocks has generally outperformed heading into and out of recessions.” The stocks are concentrated in consumer staples, which account for 25% of the index, and industrials, which make up 23%, per Wolfe Research. Materials make up 12%, while financials are 11% of the index. They are also trading as a group cheaper than the overall market, Senyek pointed out. Dividend aristocrats’ relative price-to-earnings ratio versus the S & P 500 is currently 0.89 times, cheaper than the long-term average of 1.03 times, he said. Here are some of the names in the S & P 500 Dividend Aristocrats Index. Walgreens yields 9.5% but has had a dismal year, with a total return of about -42%. The pharmacy chain, struggling with falling demand for Covid vaccines and tests, has been attempting to transition to a health-services provider. In 2021, it became majority owner of primary-care company VillageMD. Since that time, Walgreens also acquired Shields Health, a specialty pharmacy, and CareCentrix, a homecare provider. CEO Roz Brewer stepped down in September and a month later, Tim Wentworth was named as her successor . Shortly before Wentworth took the helm, Walgreens reported fiscal fourth-quarter earnings that missed analysts’ expectations and issued soft profit guidance. However, the company beat on revenue for the quarter. Meanwhile, Coca-Cola beat estimates for its third-quarter earnings and revenue in late October. The beverage giant also raised its full-year outlook. Shares have a total return of -5.97% year to date and a 3.4% dividend yield. Lastly, Medtronic ‘s stock has seen a total return of more than 4% so far this year. The medical-equipment maker posted better-than-expected earnings and revenue last week. Medtronic has a dividend yield of 3.4%. For investors who prefer funds, they can also get exposure through the ProShares S & P 500 Dividend Aristocrats exchange-traded fund. The ETF currently yields 2.14%. NOBL YTD mountain ProShares S & P 500 Dividend Aristocrats ETF — CNBC’s Michael Bloom contributed reporting.
