President Trump called for tariffs on U.S. steel and aluminum imports that could hurt corporations as well as consumers. Such tariffs also stirred fears of a trade dispute between the United States and China. This in turn propelled Wall Street’s fear gauge index above its historic average and dragged the broader markets down.
Inflation scare leading to rate hikes had already triggered a sudden panic among investors. After all, rate hikes will raise borrowing costs, eventually denting corporate profits and affecting the U.S. economy. Amid such uncertainty, investing in dividend aristocrats seems prudent, as these provide higher total returns with lower volatility and are undoubtedly the holy grail of investing.
Tariffs to Affect U.S. Corporations
Wall Street began March on a sour note after Trump said that the United States will impose steel and aluminum tariffs. Trump said that the U.S. will impose a 25% tariff on steel imports and a 10% tariff on aluminum. Such a protectionist trade policy may be one of the widest-reaching trade action he has taken to date, but it has triggered a lot of concern among corporations and consumers.
Tariffs will increase the cost of companies that rely heavily on aluminum and steel, like auto and plane makers. Needless to say, shares of Ford Motor Company (NYSE:F), General Motors Company (NYSE:GM) and Boeing Co (NYSE:BA) dipped around 3%. In fact, Corporate America has cautioned Trump that tariffs could backfire. After all, imports make up for about a third of the steel American business houses use every year.
Higher prices on steel and aluminum, furthermore, will compel companies that rely on such products to pass on some of the costs to consumers. Increased consumer prices may in the long run hamper sales growth and affect the company, leading to job losses.
Wall Street is Worried About a Trade War
Trump’s contentious tariff announcement has raised apprehensions about retaliation from China and other major U.S. trading partners. China cautioned America to abide by multilateral trade rules and not to harm the delicate global economy. We shouldn’t forget that China is the world’s dominant steel producer and Trump’s tariff moves could easily start a trade war between them.
Li Xinchuang, vice secretary general of the China Iron and Steel Association, added that imposing tariffs on steel and aluminum imports is an “extremely stupid move.” This will make U.S. industries fall behind globally during a period when “China is in its prime.”
Tariffs also raise threats of a trade war with America’s closest allies, Canada. And why not? Canada is the top exporter of both steel and aluminum to the United States. Canada is solely responsible for manufacturing 17% of all the U.S. steel imports and 43% of all aluminum imports. Canadian foreign minister Chrystia Freeland, in the meantime, has announced that “should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.”
Rate Hike Fears Loom
Concerns about trade came at a time when the broader market is already on a roller-coaster ride. The broader S&P 500 and the Dow tanked nearly 4% in February. Both the bourses had their worst month in two years. Meanwhile, the Cboe Volatility Index (VIX) soared 15% on Mar 1, indicating that turbulence has picked up as well.
Investors remain worried that rise in inflation in the near term will prompt the Fed to hike short-term interest rates at a faster pace than expected. This in turn will increase borrowing costs for business and consumers, which will eventually lead to a slowdown in the economy. It’s important to also note that an easy monetary policy helped the equity market notch a nearly nine-year bull run.
Inflation to Rise
Recent hike in pay levels raised worries about higher commodity prices. Wage growth hit the fastest pace in January in more than eight-and-a-half years, according to the Labor Department. Average hourly wages increased 9 cents, or 0.3%, to $26.74. This helped the average year-on-year hourly earnings to rise to 2.9%, the highest since June 2009. Americans are now getting fatter paychecks mostly due to a tighter labor market, tax cut policy and a rise in the minimum wage threshold in several states.
Consumers have also been ramping up their spending levels of late as they are largely benefiting from a rise in income. Traders predict that such upbeat consumer outlays will fuel inflation.
Minutes of the Jan 30-31 Federal Open Market Committee meeting has already shown that several officials expect inflation to move up this year and touch the Fed’s 2% target. Only a small number of them forecast inflation to fall short of 2%.
Why Dividend Aristocrats? 5 Solid Choices
Given the aforesaid concerns, investing in dividend aristocrats seems judicious. Such companies have tremendous financial strength and are immune to market vagaries. They reflect solid financial structure and healthy underlying fundamentals. They have also raked in excellent risk-adjusted returns over the last decade.
We have, thus, selected five such dividend aristocrats to boost your returns. Such stocks also possess a Zacks Rank #2 (Buy). The favorable Zacks Rank should help these stocks to gain further this year.
Top Dividend Aristocrats to Buy in March: 3M Co (MMM)
3M Co (NYSE:MMM) operates as a diversified technology company worldwide. The company has paid dividend for over 100 years, while it has raised its dividend for 59 straight years.
Bard has a dividend yield of 2.4% while its five-year average dividend yield is also pegged at 2.4%. The stock’s expected earnings growth for 2018 is 15.5%.
Top Dividend Aristocrats to Buy in March: Walmart Inc (WMT)
Walmart Inc (NYSE:WMT) operates retail stores in various formats worldwide. Wal-Mart’s first dividend was paid in 1974.
It has increased its dividend each year since and is currently paying out 2.3%. Its five-year average dividend yield is pegged at 2.6%. The stock’s expected earnings growth for 2018 is 11.8%.
Top Dividend Aristocrats to Buy in March: Kimberly Clark Corp (KMB)
Kimberly Clark Corp (NYSE:KMB) manufactures and markets personal care, consumer tissue, and professional products worldwide. The company raised its dividend for 45 consecutive years.
Kimberly-Clark has a dividend yield of 3.5% while its five-year average dividend yield is pegged at 3.1%. The expected earnings growth for the stock this year is 12%.
Top Dividend Aristocrats to Buy in March: Automatic Data Processing (ADP)
Automatic Data Processing (NASDAQ:ADP) provides business process outsourcing services worldwide. ADP has raised its dividend each year for 42 years in a row.
The company has a dividend yield of 2.2% while its five-year average dividend yield is pegged at 2.4%. The stock has an expected earnings growth rate of 10.8% for 2018.
Top Dividend Aristocrats to Buy in March: T. Rowe Price Group Inc (TROW)
T. Rowe Price Group Inc (NASDAQ:TROW) is a publicly owned investment manager. The company has increased its dividend for 31 years at a stretch.
It has a dividend yield of 2.1% while its five-year average dividend yield is pegged at 2.5%. T. Rowe Price’s expected earnings growth for 2018 is 32.2%.
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