Skip the 10-Year Bond? 3 Dividend Aristocrats to Consider Now

The 10-year Treasury note is a useful benchmark for income-oriented investors. But that doesn’t only apply to those who buy bonds. When the yield on a 10-year Treasury rises, it raises a legitimate question for anyone holding dividend-paying stocks: Why take on equity risk when the government guarantees you a fixed return?

That's a fair challenge. Buy a 10-year Treasury at 4%, and you'll receive that 4% at every point until maturity, backed by the full faith and credit of the U.S. government. There's no board of directors that can cut the yield, and no earnings miss that could send your principal lower.

But that nearly risk-free return comes with its own quiet risk: inflation. A fixed coupon that looks attractive today may deliver significantly less purchasing power a decade from now. For investors to come out whole in real terms, the bond yield has to outpace inflation for the entire holding period. 

That's not always a safe assumption, which is why dividend stocks, which have growing yield and share price appreciation potential, present a viable alternative to fixed income.

Dividend-Paying Stocks Offer a Different Proposition

When investors buy dividend stocks, the dividend yield carries risk, and the share price will fluctuate. But investors who accept that equity risk get something Treasury holders don't: the potential for capital appreciation, and, for the right companies, a dividend that grows over time.

That combination changes the math. An investor who buys a stock with a 3% dividend yield today may be earning a much higher effective yield on their original investment five or 10 years from now, while also sitting on capital gains. That looks better than a fixed-rate bond.

Some dividend-paying stocks make that case even stronger. A select group of companies currently offer dividend yields that exceed the rate on the 10-year Treasury and carry an additional distinction: membership in the Dividend Aristocrats club, a designation reserved for companies that have raised their dividend payout for at least 25 consecutive years.

These aren't high-flying growth stocks. But for investors who prioritize income, consistency, and inflation protection, they represent something the 10-year Treasury cannot: a return that has the potential to grow.

Realty Income: A Monthly Dividend With Rate-Sensitive Upside

When it comes to high-yield dividend stocks, Realty Income (NYSE: O) is at the top of many lists. One reason is that the company is a real estate investment trust (REIT)—a business structure that is required by law to pay at least 90% of its taxable income to shareholders in the form of dividends. Realty Income has become a staple of income investors' portfolios, one of the most reliable monthly dividends and a yield of over 5% in mid-April.

But the key to this investment thesis is capital growth. That's why it’s important to note that REITs have struggled in the past five years, and O is no exception. The stock price is down about 4% over that period. However, the total return, which includes dividends, has been over 27%.

That’s not a market-beating return, but the stock is up over 10% this year. That may be because investors believe lower interest rates will stimulate the real estate market. It’s a binary bet, but one that a monthly dividend makes worth taking.

Hormel: A Turnaround Play With Deep Value Appeal

Hormel Foods (NYSE: HRL) has been a market laggard for several years. In fact, over the last five years, shares of HRL have fallen by about 55%, with most of that loss coming in the past three years. That comes in spite of a dividend with a yield of more than 5.5%.

Some of the reasons behind Hormel’s struggles—including a chicken recall and plant fire—are beyond the company’s control. However, the stock has an attractive valuation. Plus, the company has a business model that includes both brand names and its own private label brands. That’s a nice hedge for consumers who may feel under pressure from sticky inflation.

Analysts give HRL a consensus price target of $27, which suggests potential upside of nearly 30%. That goes along with the dividend that offers asymmetric upside.

Kenvue: Defensive Income With Consumer Recovery Potential

Kenvue (NYSE: KVUE) is another name in the consumer staples sector to consider. The stock is down more than 20% in the last 12 months as consumers are looking to private label brands instead of Kenvue’s brand names.

But analysts have a consensus price target of $19.33 on KVUE, which would be a gain of about 10% from the stock's mid-April price and is supported by expectations of around 8% earnings growth. That could move higher if consumers get more relief from food prices later this year.

But even if that doesn’t happen, investors get the security of a dividend with a current yield of about 4.7%. Kenvue inherited its Dividend Aristocrat status because it spun off from Johnson & Johnson (NYSE: JNJ) on Aug. 23, 2023, suggesting that the company will continue to raise its payout to the benefit of patient shareholders.

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