2022 hasn't exactly been an easy year for investors. Unlike the bear market of Q4 2018 or the pandemic-induced bear market of spring 2020, this bear market could be a long slog as the Federal Reserve raises interest rates to combat inflation, supply chains remain constrained, and geopolitical tensions are intensifying. Another worry for investors is valuations. The S&P 500 doubled between 2019 and the end of 2021 -- so it's still produced monster gains even if you factor in this year's sell-off.
One tried and true strategy for outlasting a bear market is to invest in stable businesses you can count on to make it through tough times and possibly even gain market share in the process. Dividend Aristocrats, which are members of the S&P 500 that have paid and raised their dividends for at least 25 consecutive years, tend to have stable cash flows and strong balance sheets -- traits that can be overlooked during a raging bull market, but that matter more than ever during an economic downturn.
Raytheon Technologies (RTX -0.18%), NextEra Energy (NEE 1.36%), and Emerson Electric (EMR 1.05%) are three Dividend Aristocrats that could be worth adding to your watch list in June. Here's why.
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The pick of the aerospace and defense sector
Lee Samaha (Raytheon Technologies): This company makes the Dividend Aristocrat list by stint of formerly being part of United Technologies. For reference, the aerospace business of the former United Technologies was merged with Raytheon Company in 2020 to create Raytheon Technologies.
It makes sense to buy shares in companies that have relatively secure growth prospects in uncertain times. While the pace of commercial aviation recovery is open to question, its ultimate progression is not. The industry is in the throes of a multi-year recovery in flight departures following the severe restrictions imposed due to the pandemic. That's good news for Raytheon's Pratt & Whitney aircraft engine and aftermarket sales. In addition, Raytheon's Collins Aerospace (an all-purpose aerospace supplier) will see growth in its original equipment and aftermarket sales.
Meanwhile, recent events in Ukraine, the potential expansion of NATO, and geopolitical tensions have led to an increased awareness of the need to boost defense spending -- and notably, in the areas that Raytheon Missiles & Defense and Raytheon Intelligence & Space specialize in.
Raytheon is definitely not immune from the supply chain issues and component shortages bedeviling the global economy right now. Still, its end-market demand looks more secure than many industrial peers. As such, you can feel confident that Raytheon's customers will still be making orders when the economy gets back into gear. Moreover, with the stock sporting a 2.4% dividend yield and plenty of growth to come, it's an attractive option for income-seeking investors.
Give your portfolio a jolt with this utility stock
Daniel Foelber (NextEra Energy): Utilities, along with healthcare and consumer staples, are commonly seen as some of the more recession-resistant sectors of the economy. The reason is that demand for utilities tends to be less vulnerable to economic cycles than, say, the consumer discretionary or industrials sectors.
Another reason investors seek out utility stocks is that they tend to pay above-average dividends. For example, the average stock in the utility sector has a 2.7% yield, which is right behind the average yield in the energy sector and the real estate sector. However, utility earnings and cash flows tend to be much more stable than those produced by oil and gas companies.
XLU Dividend Yield data by YCharts
The main criticism of utility stocks is their lack of growth. NextEra Energy stands out as one of the few utilities that has a track record for producing market-beating results, growing its dividend, and growing its business through a combination of solar energy, wind energy, energy storage, hydroelectric, and natural gas. In fact, NextEra Energy is the largest renewable energy operator in North America.
NextEra was an early advocate of the need to shift away from coal and natural gas to renewable energy. In many ways, it has been the trendsetter, as virtually every major regulated electric utility is now following suit by investing heavily in renewable energy. When a company's competitors start copying its game plan, that's a good indicator that the company is doing something right.
NextEra's experience in funding and operating renewable energy projects should give it a big advantage in the years to come. Its regulated cash flows and an extensive backlog of projects gives it a combination of predictability and growth that is rare in the utility sector. NextEra's dividend yield of 2.2% is below the sector average. But that's in large part because NextEra has produced market-beating results and its stock price has gone up faster than it can raise the dividend.
For investors looking for a reliable passive income stream and exposure to the growth of renewable energy, NextEra stands out as a clear long-term winner.
Plug this dividend payer into your portfolio for plenty of passive income
Scott Levine (Emerson Electric): The volatility rocking the markets during the first half of 2022 has, undoubtedly, shaken the resolve of many investors. But those experienced with the markets' whims know that things will eventually stabilize and return to growth. These downturns, moreover, provide a great opportunity to scoop up solid stocks at discount prices -- solid stocks like Emerson Electric, a leading business focused on automation solutions as well as those addressing heating and cooling.
Tracing its history back 125 years, Emerson Electric offers investors a 2.4% forward dividend yield and distinguishes itself as a Dividend Aristocrat. But that's only one of its titles. Emerson Electric is also a Dividend King, returning cash to shareholders for 65 years. That type of commitment to investors is far from common, and fortunately for investors, June is a great time to start a position as the stock is in the bargain bin. Trading at a discount to its five-year average price-to-forward earnings multiple of 20.2, Emerson Electric's stock is currently valued at 17.2 times forward earnings.
Like many businesses, Emerson Electric faces challenges from ongoing supply chain constraints. In addition, the company recognizes higher fuel prices as an additional headwind. But management is confident in the company's resilience. While it downwardly revised its 2022 operational cash flow forecast from $3.8 billion to $3.6 billion, Emerson Electric projects better-than-expected growth on both the top and bottom lines of the income statement. Whereas management originally forecast 2022 year-over-year net sales growth and earnings per share (EPS) of about 7% and $4.79, respectively, it now expects to report year-over-year net sales growth of approximately 9% and EPS of $4.85.
Looking beyond the company's 2022 expectations, investors will find that it stands to benefit from the growing adoption of renewable energy solutions and battery storage. This, plus the fact that the company is a stalwart with regard to its legacy businesses, suggests that Emerson Electric is a powerful choice for investors to pick up in June.
