Article Thesis

Coronavirus cases have started to rise again in a number of countries, including the US and much of Europe. Due to unfavorable factors that will be in play in winter, it is possible that case counts will continue to climb. Those that fear what such a situation could do to their portfolios may find the 7 defensive, inexpensive, and thus lower-risk Dividend Aristocrats that we will be looking at in this article helpful. Due to their defensive nature and their long dividend growth track records, it can be expected that these stocks will continue to generate growing income for their owners, no matter what.

Resurgence Of The Virus

In the US, coronavirus cases have always seen meaningful ups and downs, although the downs were not as pronounced as they were in other areas of the globe, e.g. Europe. Recently, however, case counts in the US started to climb again:

Source: New York Times

We see that, following the initial peak, new infections started to slow down, before the case count once again started to climb in June and throughout July. By September, however, coronavirus cases in the US had declined substantially once again, before they started to climb again in recent weeks.

The reasons for the steep climb in new cases in summer are not perfectly understood, but most likely reopening efforts played a role here. The more recent resurgence, however, can likely be attributed, at least partially, to colder weather that makes people more vulnerable to the virus, due to factors such as changes in humidity (compared to the summer months) and less sunlight.

COVID cases by countySource: New York Times

In the above chart, we see that the hardest-hit areas in recent days include many regions of the US with below-average temperatures, which shows that the weather impact could really be a driving factor for the recent rise in new cases.

This is not a US-centric phenomenon, however, as a similar rise in cases is visible in other parts of the world as well. Right now, cases are seeing an especially severe rise in Europe, which had slowed down the spread of the virus quite a lot in summer. The last couple of weeks, however, have been quite different, as case counts have risen massively in countries such as Spain, France, Great Britain, Germany, and many more. Just a couple of days ago, total infections in Europe surpassed those from the US, which had previously not been the case, due to lowish infection rates in Europe throughout the summer months. According to, new daily infections in Europe have crossed 200,000, which is well above the peak level the US has seen so far (~80,000 daily). The US and Europe are just two of the regions where cases have been climbing in recent weeks, similar scenarios have played out in a range of other countries.

We can summarize that the virus is resurfacing across different places across the world, and there is likely some connection to colder/harsher weather in countries of the Northern Hemisphere. It seems unlikely that this trend will reverse in the very near term, so further increases in infections have to be expected. Many politicians have stated that another lockdown is not what they want to do, but nevertheless, a resurgence of the virus on a global scale could hurt global economies, and equity markets may get under pressure again. It thus makes sense to take a look at stocks that could potentially provide stability in times of volatility, I believe.

Dividend Aristocrats For Times Of Crisis

Dividend Aristocrats (NOBL) have historically outperformed broad equity markets, but that outperformance was not created during bull runs and good times. Instead, outperformance versus broader markets is mainly the result of a much better bear market performance. Ploutos shows that the Dividend Aristocrats have easily outperformed the S&P 500 (SPY) during the Great Recession and during the bursting of the bubble. We can thus summarize that Dividend Aristocrats, as a group, are primarily shining during times of weakness in equity markets. Their oftentimes defensive business models, combined with reliable dividend payouts and below-average volatility, means that these stocks are suitable for times when macro headwinds are looming. Not all of the Dividend Aristocrats are necessarily a great buy at the same time, however, as some do usually trade above fair value. For those that do not want to buy the ETF, but make a selection of specific stocks, the following list may provide a starting point for further research.

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7 Candidates That Could Be Of Value

1. Johnson & Johnson

Johnson & Johnson (JNJ) is active in a non-cyclical industry (healthcare), has a great balance sheet with an AAA-rating, and a very long and successful track record, both regarding dividend growth and total returns.

Since people with medical needs require treatment, no matter the state of the economy, Johnson & Johnson’s exposure to economic downturns is not very large, which is also showcased by the solid performance during the Great Recession. During 2008-2010, EPS actually went up, showcasing the great resilience of the company’s business model that is well-diversified across pharma, medical tech, and non-cyclical consumer goods.

We could talk about Johnson & Johnson’s below-average valuation, but the value proposition is most easily explained by showing its yield spread over treasuries:

ChartData by YCharts

Johnson & Johnson’s dividend yield is 180 base points higher than the yield of 10-year treasuries, which is around the highest level seen over the last decade. For income investors, buying Johnson & Johnson could thus be a good move today. Remember that Johnson & Johnson has a better credit rating than the US government (AA-rated) and that Johnson & Johnson’s dividend will likely be increased regularly, which will not happen when one invests in bonds.

2. AT&T

AT&T (T) is a controversial stock, as some are seeing a lot of value, while others believe that the company is doomed. The company is feeling some headwinds from the current crisis – its box office business has taken a hit, for example. But many of the business units are resilient, as people still need their phones, internet access, etc. Due to people staying at home more often, demand for HBO and HBO Max has actually been stronger than most expected, and even the trend of cord-cutting seems to have slowed down during the pandemic, which is a positive for AT&T’s linear TV offering.

Overall, AT&T’s free cash flows have declined by just ~5% year-to-date, and FCF during the third quarter was actually up compared to one year earlier. This makes us believe that the dividend is safe here, especially since the FCF payout ratio during the third quarter was just 45% – and all the 5G investments the company is making are already included in that.

ChartData by YCharts

The yield spread between US treasuries and AT&T’s dividend has blown out to levels never seen before during 2020. Due to the fact that the dividend looks well-covered and will thus likely not get cut, the high yield spread indicates that there might be a good buying opportunity in AT&T’s stock right now. Add in progress when it comes to deleveraging, a low valuation, and a very low beta of just 0.65, and AT&T looks like a stock that should outperform during an eventual downturn.

3. AbbVie

AbbVie (ABBV), which was spun off by Abbott Laboratories (ABT), has been a solid performer ever since going public, easily outperforming the broad market:

ChartData by YCharts

The biotech/pharma company does nevertheless not trade at a high valuation at all, as shares are valued at just 7.0 times next year’s earnings estimates, according to YCharts.

For many investors, one of the reasons to hold shares of AbbVie is the stock’s attractive dividend, which offers a yield of 5.6% and which has been increased at an attractive pace ever since the company went public. The yield spread over Treasuries, currently at 4.7%, is historically high, which could indicate that income investors are faced with a buying opportunity right now.

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When we consider the resilient business model, the attractive results that AbbVie has delivered this year despite the pandemic, and the very low volatility (with a beta of just 0.67), AbbVie looks like one of the most attractive Dividend Aristocrats today.

4. Altria

Altria (MO) is somewhat of a battleground stock, as bulls and bears are offering very different views regarding the future of the company. Looking at what we know, however, we can say that Altria has a proven business model that has very resilient to any kind of macro headwinds in the past, be it recessions or bear markets. Some studies indicate that economic downturns may actually be positive for smoking rates, which would explain why Altria was able to grow its revenues substantially during the first half of the year. Altria also recently re-affirmed its guidance for 2020; the company is expecting net profits of ~$4.30 per share this year, which would be an improvement versus 2019. A company that is able to grow its profits during a pandemic and global recession deserves some recognition, we believe. In Altria’s case, this excellent resilience is combined with a share price that seems artificially low, as shares are valued at just ~9 times this year’s net profits.

ChartData by YCharts

Combine these positives with a yield spread over treasuries that is as high as it has ever been throughout the last decade (backing out the March selloff), and shares look rather attractive. A low valuation, a high yield, a resilient business model, and a very low beta of just 0.5 make for a nice pick for a potential downturn, we think.

5. Realty Income

REIT investors have seen many of their shares falter during this pandemic, but this is not entirely based on the underlying performance of many of these stocks. REITs in the hotel industry or malls are having trouble for sure, but more resilient segments are not experiencing too many headwinds. Realty Income (O), a triple-net REIT that leases to a wide range of businesses, including dollar stores, pharmacies, and many more, has reported solid results so far this year. The company reported revenue growth of 14% in H1, and its FFO per share was higher than during the previous year’s period, both in Q1 and in Q2. This is outstanding resilience for a REIT with exposure to parts of the brick-and-mortar retail industry, and yet, the market did not reward Realty Income for its strong operational performance during this downturn, as shares are down 25% over the last year.

ChartData by YCharts

Combine Realty Income’s resilience with its excellent track record, a dividend that yields 4.7%, dividend growth even during this pandemic, and a low beta of just 0.63 and you get a stock that seems like a good pick for bad times. The fact that the yield spread over treasuries, currently at 3.7%, is well above the historic norm indicates that Realty Income is attractively priced from an income investor’s point of view.

6. Aflac

Aflac (AFL) is, as an insurer, active in a rather boring industry, but that does not at all mean that the stock must be a bad pick. Oftentimes, boring industries can give investors great long-term results. This surely is the case with Aflac, as the company has delivered total returns in excess of 5,000% over the last 30 years (per YCharts). As a health and life insurer, Aflac does not have to worry about business interruption claims from its customers, unlike some other insurers. On top of that, Aflac generates a big portion of its revenues and profits in Japan, which has not been hit very hard by the current pandemic, which further reduces Aflac’s exposure.

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ChartData by YCharts

Aflac’s shares are historically cheap right now, trading at just 8 times net profits, which equates to a 20% discount compared to the already low median 10-year earnings multiple. On top of that, its yield spread over US treasuries is well above the historic norm, at more than 2%. Add in below-average volatility, and Aflac is a solid, defensive pick for good times and bad times.

7. Walgreens Boots Alliance

Walgreens Boots Alliance (WBA) is a pharmacy company that has seen its shares come under a lot of pressure in 2020. This occurred despite the fact that revenues were up year to date, which is not an overly big surprise. Many of the goods sold at Walgreens’ stores are not cyclical in nature, instead, demand is stable, no matter the strength of the economy. Lockdown measures hurt revenues slightly, but still, the performance was not bad, with revenues being up 2% during the most recent quarter.

Due to increased hygiene efforts, Walgreens reported some additional expenses during the quarter, and yet, profits remained at an attractive level. The company has generated earnings per share of $4.74 during the last four quarters, and forecasts see EPS of $4.80 and $5.15 for the current and next year, respectively.

At the same time, however, Walgreens’ shares have declined 36% year to date, which has made its yield spread over treasuries blow up:

ChartData by YCharts

Income investors currently get a dividend that yields 400 base points more than US treasuries, and with a payout ratio of just 39% (based on EPS estimates for the current year), a dividend cut does not look overly likely. Walgreens may not be the best healthcare company on a fundamental basis, but its shares are so cheap that not too many things can go wrong here, I believe. At an earnings multiple of less than 8, shares are priced for disaster, and if Walgreens can show that it can keep its operations growing, then there should be significant upside potential. Meanwhile, with a beta of just 0.45, Walgreens should outperform during a potential equity market downturn.


Coronavirus cases are rising around the globe, and have hit a new record level this week. Rising case counts in the US, much of Europe, and additional countries could lead to renewed headwinds for equity markets and global economies. It could make sense to prepare one’s portfolio for times of increased volatility, and Dividend Aristocrats are a suitable choice for that.

For those that do not want to invest in Dividend Aristocrats broadly via the ETF, the picks in this article could be of value, we believe. I’d be happy to hear what readers think in the comment section!

One Last Word

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Disclosure: I am/we are long ABBV, JNJ, WBA, MO, O. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.