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19 Dividend Aristocrats That Have Gone on Deep Discount

Lisa Springer, Contributing Writer, Kiplinger.com

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In times of market turmoil, one group of stocks that investors can count on to deliver reliable income growth is the Dividend Aristocrats: an elite group of companies that have produced at least 25 consecutive years of dividend hikes.

During the 2010s, these high-quality stocks returned an average of 14.75% per year, besting the S&P 500 by 1.2 percentage points. A big reason for the Dividend Aristocrats' outperformance, especially over the long term, is the high dividend component of their returns.

Studies by Standard & Poor's have shown that more than one-third of the long-term total return of stocks comes from dividends. In the case of the Aristocrats, many of them traditionally don't boast attractive yields for new money. But investors that stick with them over the long haul are rewarded with growing "yields on cost" over time.

Reliable payouts also help make this group less risky than most other stocks. For instance, volatility of the Dividend Aristocrats' returns during the 2010s, as measured by standard deviation - a measure of how widely or narrowly prices are dispersed compared to an average - was more than 9% lower than the S&P 500.

That doesn't make them invulnerable from market downturns. A number of Dividend Aristocrats have gone on discount, losing 10%, 20%, even 30% of their value since the start of the bear market. But they offer more than cheap prices - they offer real value, both in higher-than-usual yields as well as snap-back potential once the market rebounds.

Here are 19 Dividend Aristocrats that should appeal to investors who want safety and reliably rising dividends at discounted prices.

SEE ALSO: 64 Dividend Stocks You Can Count On in 2020

AbbVie

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Market value: $111.1 billion

Dividend yield: 6.3%

Performance since 2/19/20: -20.1% (vs. -22.4% for the S&P 500)

AbbVie (ABBV, $75.24) expects that its pending $63 billion merger with Allergan (AGN) will offset slowing growth of its blockbuster drug Humira. AbbVie initially said the merger, which is experiencing coronavirus-related delays in closing, would create a combined business that would generate more than $30 billion in sales this year, then high-single-digit growth into the foreseeable future. (The current economic turmoil likely will dampen those expectations somewhat.)

AbbVie develops drugs for autoimmune diseases, cancer, virology (including HIV and Hepatitis C) and neurological disorders. And in fact, one of the company's HIV drugs (Kaletra) is being tested as a treatment for coronavirus. Meanwhile, Allergan is best-known for its cosmetic drug Botox and its dry-eye treatment Restasis. Wall Street firms like Allergan's strong Botox-related cash flows, which they think will bolster ABBV's growth opportunities.

The post-acquisition-related debt load will be high at $95 billion, but AbbVie expects to trim $15 billion to $18 billion of debt by the end of 2021 while also realizing $3 billion of pre-tax cost synergies. The combined business generated $19 billion in operating cash flow last year.

ABBV shares look cheap at just 7.5 times forward-looking earnings estimates, which is modest compared to the company's historical average forward P/E of 12. Dividend growth investors will like AbbVie's 48 consecutive years of payout hikes; a conservative payout ratio of 48% that provides flexibility for dividend growth and debt reduction; and a five-year annual dividend growth rate of 18.3%. ABBV also is among the highest-yielding Dividend Aristocrats at north of 6%.

SEE ALSO: Where Is the Stock Market Headed? 14 Wall Street Pros Sound Off

Aflac

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Market value: $26.2 billion

Dividend yield: 3.1%

Performance since 2/19/20: -29.7%

Aflac (AFL, $36.26) offers supplemental health insurance and life insurance to more than 50 million customers worldwide. While many people are well aware of the Aflac brand (and its duck) in the U.S., the company is a market leader in Japan, where it provides supplemental medical and/or cancer insurance to one of every four households. AFL recently expanded its product lines to include accident, disability and long-term care insurance and launched vision and dental insurance products this year.

Demand for Aflac's products is rising due to steadily increasing health care costs here and in Japan. The expanding self-employed workforce in the U.S. was creating a growth opportunity, too, though the coronavirus outbreak and its effect on employment is likely to blunt that in the short term.

Aflac has delivered 11% annual EPS growth over the past three years while keeping debt extremely low at just 17% of capitalization. That has helped the company keep up a streak of 38 consecutive dividend hikes, including a 3.7% increase in early February to 28 cents per share that keeps it in the ranks of the Dividend Aristocrats.

AFL shares trade at 8 times forward earnings estimates, with 2020 profits expected to stay flat with 2019 before improving by about 4% next year. It's also trading at 0.9 times book value, compared to a historical ratio of 1.4 times book.

Piper Sandler analyst Stephen Scouten rated Aflac as one of his top 2020 financial service industry picks in January. Naturally, the stock has seen a few price-target downgrades to reflect its losses as it dropped with the rest of the market, but analysts have otherwise been standing firm on their stances. One exception: RBC Capital analyst Mark Dwelle upgraded AFL from Underperform (equivalent of Sell) to Sector Perform (equivalent of Hold).

SEE ALSO: 15 Dividend Cuts and Suspensions Chalked Up to the Coronavirus

Walgreens Boots Alliance

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Market value: $40.0 billion

Dividend yield: 4.1%

Performance since 2/19/20: -13.3%

Walgreens Boots Alliance (WBA, $45.16) was challenged by falling generic drug prices and reimbursement pressures from third-party payers last year, but the company expects to boost 2020 performance by trimming $1.5 billion from expenses, strengthening its digital partnership with Microsoft (MSFT) and partnering with Kroger (KR) and LabCorp (LH) to drive traffic to stores.

Credit Suisse analyst AJ Rice earlier this year wrote that the company's prescription growth was likely to re-accelerate in 2020 as a result of its expanded relationship with UnitedHealth Group (UNH) in the Medicare Part D space.

But Walgreens suddenly finds itself positioned well for a different reason: It's one of the few retailers still allowed to conduct business during many states' stay-at-home orders and other partial closures amid the coronavirus outbreak. That's because Walgreens deals in prescriptions, health care products and basic staples that people are increasingly loading up on as they prepare to quarantine themselves. No surprise, then, that WBA has held up very well in this bear market.

However, Walgreens' stock still trades on the cheap, at just 11 times forward-looking earnings estimates (versus a historic 15 forward P/E) and 0.3 times sales. Meanwhile, WBA has improved its payout for 44 consecutive years, firmly entrenching it among the S&P Dividend Aristocrats. Better still, its dividend accounts for just 44% of its profits, giving Walgreens plenty of room to expand it once the world is in better economic straits.

SEE ALSO: 25 Dividend Stocks the Analysts Love the Most

Nucor

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Market value: $10.5 billion

Dividend yield: 4.6%

Performance since 2/19/20: -26.8%

Nucor (NUE, $34.92) is North America's largest and most diversified steelmaker; the company operates 25 steel mills representing 27 million tons of annual production capacity. Thanks to its largely variable cost structure, Nucor is nimble and a low-cost producer capable of generating profits even during industry downturns - not a bad quality to boast at the moment. Nucor plans to boost profits by moving up the value chain with more value-added products and expanding its sales channels.

While Wall Street's pros are writing bearish notes left and right in this environment, Nucor is actually enjoying a few analyst upgrades.

On March 30, Goldman Sachs' Matthew Korn upgraded Nucor from Neutral (equivalent of Hold) to Buy, touting the company's "strong" balance sheet, diverse portfolio of facilities and products, and flexibility in capital expenditures. Deutsche Bank's Chris Terry upgraded NUE the same day, from Sell to Hold.

NUE shares are valued at less than four times its cash flows, which is less than its historic multiple of more than 10. It also trades at just 11 times forward-looking earnings estimates. Dividend growth is glacial, at just 1.6% annually over the past five years. But a modest payout ratio helps de-risk this Dividend Aristocrat's quarterly dole, which has been improving for 47 consecutive years.

SEE ALSO: The 12 Best Low-Volatility Stocks of the Market Crash

A.O. Smith

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Market value: $6.3 billion

Dividend yield: 2.5%

Performance since 2/19/20: -12.5%

A.O. Smith (AOS, $38.60) is the market leader in residential and commercial water heaters, boilers and water treatment products. The company has benefitted from a stable North American replacement market, with replacement units representing 85% of demand, but in 2019 it faced setbacks in China, which accounts for 34% of sales.

The company expected to rebound in 2020 as a result of recent acquisitions that have strengthened its North American water treatment portfolio, reduced trade tensions and new higher-end products for affluent customers in the China market. But the coronavirus outbreak has likely set back progress at least a little in both regions.

Nonetheless, there's plenty to like about how A.O. Smith operates, given what it means for the company once the world economy rebounds. Over the past decade, AOS has generated 10% annual revenue gains, 19% yearly growth in adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) and 25% annual adjusted EPS expansion.

AOS shares have fared very well compared to the broader market, and as a result, its current discount isn't quite as steep as the other Dividend Aristocrats. Nonetheless, its 16 forward P/E and 13 price-to-cash flow are both well below the company's historic valuations.

The yield on AOS shares isn't huge, either, but dividend growth has been impressive at more than 20% annually over the past five years. Moreover, A.O. Smith has a strong balance sheet, modest 40% payout ratio and plenty of cash to cover the quarterly cash distribution.

SEE ALSO: 24 Major U.S. Companies Hiring Now to Meet Coronavirus Demand

General Dynamics

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Market value: $38.7 billion

Dividend yield: 3.3%

Performance since 2/19/20: -28.4%

Defense contractor General Dynamics (GD, $133.60) grew all five of its businesses last year and ended 2019 with a record $86.9 billion backlog. Aerospace orders were the highest in nearly a decade.

General Dynamics produces Gulfstream aircraft, Stryker combat vehicles, nuclear-powered submarines and combat systems for Abrams tanks. GD also supplies IT products and services to the U.S. military. Indeed, the company derives two-thirds of its revenues from the U.S. government.

Defense spending was already allocated for 2020, so in theory, General Dynamics should have avoided some of the economic headwinds associated with the coronavirus. The company's recent contract wins include $465 million from the U.S. Army for Abrams tanks, $800 million for IT support of state health insurance programs, $730 million for U.S. Navy satellite communications systems and $22.2 billion for the construction of nine new Navy submarines.

Nonetheless, General Dynamics' shares are off 28% in the current bear market, underperforming the index. But that has trimmed the stock's valuation to an attractive 10 times forward earnings - much less than its historic 17 multiple. Those losses also have juiced GD's yield to 3.3%, on a dividend that has improved for 28 consecutive years and accounts for just 33% of earnings.

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Johnson & Johnson

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Market value: $350.7 billion

Dividend yield: 2.9%

Performance since 2/19/20: -10.7%

Johnson & Johnson (JNJ, $133.01) is a household name in consumer health products with over-the-counter brands including Tylenol, Zyrtec, Motrin, Band-Aid and a full line of baby care products.

The company's pharmaceutical division is in focus right now, as it recently said it could have a COVID-19 coronavirus vaccine ready for human testing by September and possible emergency use by early 2021. Better still, it secured a $456 million U.S. government contract that will help it manufacture up to 1 billion doses.

Johnson & Johnson's positioning in health care broadly, as well as its connection to fighting the coronavirus, has made it quite the safe haven stock indeed, with losses of just more than 10% since the start of the bear market. Nonetheless, it's trading at 15 times forward-looking earnings and 15 times cash flows, both of which are a little cheaper than their historic multiples.

JNJ's also well-positioned given a liquid balance sheet with little debt and robust cash flows. Again, that's key to its 57-year dividend growth streak - one that's expected to continue with a payout hike in April, keeping it among the longest-tenured Dividend Aristocrats. And the analyst community has been reiterating their support for the stock; nine pros have weighed in on Johnson & Johnson over the past three months, all of them with Buys.

SEE ALSO: 10 Health and Pharmaceutical Companies Fighting the Coronavirus

Chubb

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Market value: $51.5 billion

Dividend yield: 2.6%

Performance since 2/19/20: -30.6%

Chubb (CB, $114.04) is the world's largest property and casualty insurance company, with operations in 54 countries. The company offers commercial and personal property and casualty insurance, accident and supplemental health insurance, reinsurance and life insurance. Chubb's competitive advantages include its extensive product offerings, exceptional financial strength and global network of branch offices.

Chubb was well-positioned before the coronavirus struck. Last quarter, the company recorded its strongest organic growth in five years. Property and casualty underwriting income increased 18.5% in 2019 due to improving pricing, a better underwriting environment and falling interest rates.

However, like most of the rest of the insurance industry, Chubb has taken a spill. That's in large part because the market's decline has sent investors into Treasuries, which has sent yields on those into the ground. Insurers, however, typically invest in Treasuries and other highly rated fixed-income products to generate returns.

The good news is that CB shares are trading at 10 times forward-looking earnings, which is a nice discount from its historical average near 13. Its dividend yield, while modest, is on the high end of its range from the past 10 years. And that dividend has grown for 26 consecutive years, with No. 27 on the way. The board of directors announced in late February that it planned to recommend a 4% increase at Chubb's annual meeting later this year.

At only 27% of earnings, Chubb has a very conservative payout, even for a Dividend Aristocrat. This low ratio and the company's excellent balance sheet, with debt at less than 20% of capitalization, support an exceptionally safe dividend.

SEE ALSO: 11 Defensive Dividend Stocks for Riding Out the Storm

Genuine Parts

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Market value: $9.6 billion

Dividend yield: 4.8%

Performance since 2/19/20: -33.5%

Genuine Parts (GPC, $66.08) is a leading distributor of replacement automotive parts through its 5,900 NAPA auto parts stores across 44 states. In addition, the company has automotive replacement parts businesses in Canada, Mexico, Europe, Australia and New Zealand, which grew last year via acquisitions.

Genuine Parts has posted three straight years of record sales and recently began an operational streamlining expected to trim $100 million from annual expenses and help 2020 EPS. Its chances at a fourth consecutive year of record revenues is in doubt, however, thanks to the coronavirus.

That said, vehicles require repairs even during recessions, and thus auto-parts retailers are often considered "recession-proof." But while GPC's operations might get some help during and for some time following the potential recession ahead, investors still have turned tail on Genuine Parts, selling the Dividend Aristocrat off by more than a third since the bear market started.

But don't sleep on GPC. It's a solid cash generator whose payout represents less than 60% of this year's expected profits. Indeed, the company raised its payout in mid-February, by 3.6% to 79 cents per share, marking its 64th consecutive payout hike. Meanwhile, you can buy GPC shares for nearly 11 times earnings, which is considerably less than its historic 17.6 forward P/E. And its yield, at almost 5%, is at heights last seen during 2000 and 2009.

SEE ALSO: 13 Stock Picks Getting Hit by Coronavirus Fears

Cardinal Health

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Market value: $14.1 billion

Dividend yield: 4.0%

Performance since 2/19/20: -18.4%

Cardinal Health (CAH, $47.96) is a global integrated health care business with operations in 45 countries and more than $146 billion in annual sales. Cardinal supplies products to nearly 90% of American hospitals, more than 29,000 pharmacies, 6,500 labs and 3 million patients who receive its home healthcare products.

Broad trends including an aging population, increased demand for health services and improving market dynamics in generic drug programs bode well for Cardinal's future sales in a normal market. Opioid litigation weighed on the stock in 2019, but payouts now look to be much less than initially anticipated.

CAH also is expanding its specialty and nuclear health solutions to grow its pharmaceutical business. In medical products, Cardinal is adding more at-home solutions and services. A cost reduction program targeting $500 million of savings over five years should also help profits.

Like many health care stocks, Cardinal hasn't been immune to the bear market but has held up better than the index. It also looks like a solid bargain by many metrics: its forward P/E is less than 9, price-to-cash flow is 27% cheaper than it has been historically, and CAH's 4% yield is near all-time highs.

Total debt is considerable, at roughly $8 billion versus just $1.7 billion in cash, but the company generates about $1.7 billion in free cash flow annually. Moreover, its modest dividend payout ratio of 36% makes it all the likelier that Cardinal is able to extend its 34-year streak of payout hikes and remain among the Dividend Aristocrats.

SEE ALSO: The 11 Best (And 11 Worst) Stocks From the 11-Year Bull Market

Colgate-Palmolive

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Market value: $55.1 billion

Dividend yield: 2.6%

Performance since 2/19/20: -11.9%

Consumer products giant Colgate-Palmolive (CL, $66.58) provided investors with a breath of fresh air in early March, when it raised its dividend by 2.3% to 44 cents per share - the company's 58th consecutive annual payout hike.

Colgate, which sells products in more than 200 countries, is a global consumer staples leader with its Colgate line of toothpastes, whiteners and toothbrushes; liquid hand soap, which it sells under the Softsoap, Palmolive and Protex brands; and in high-end pet foods, which are sold under its Hill's Science Diet and Hill's Prescription Diet brands.

CL planned on delivering organic growth by advancing its core toothpaste portfolio in 2020 via improved packaging and pricing and relaunching Science Diet pet foods with enhanced ingredients, assortment and branding.

However, Colgate finds itself outperforming the market not on hopes of better packaging driving sales. Instead, the company's shares have been sought out as a store of stability, given that it's churning out consumer staples at a time in which people across the globe are stuck at home waiting out this pandemic. That, as well as a reasonable 62% payout ratio, keeps risk to the dividend low. So does robust free cash flow that exceeds $2 billion annually.

CL is hardly cheap, at 22 times forward earnings estimates and 18 times cash flows, but it's cheaper than it has been on average over the past five years. And it's a great place to find defense. Colgate is among UBS's Buy-rated picks in the consumer staples space, with the analyst outfit expecting CL to benefit from more spending on grocery shopping and other at-home consumption.

SEE ALSO: 10 Low-Volatility ETFs for This Roller-Coaster Market

McCormick & Company

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Market value: $19.0 billion

Dividend yield: 1.7%

Performance since 2/19/20: -12.7%

McCormick (MKC, $143.15) is the global market leader in spices, seasonings and food flavoring, with sales in over 150 countries. The company's McCormick, French's, Frank's Red Hot and Lawry's brands are found in practically every American grocery store. shoppers. McCormick also operates a flavoring solutions business that supplies seasoning blends, herbs, coatings and flavorings to multinational food manufacturers and foodservice suppliers.

The markets for flavorings and seasonings has been increasing 5% a year due to demand from millennials and Generation Z shoppers for bolder flavors and ethnic-focused food choices. McCormick is capitalizing on this trend by launching product line extensions, leveraging its established brands and expanding operations in emerging markets and organic food channels.

McCormick reported earnings results on March 31 for the quarter ended Feb. 29, giving investors a small window into COVID-19's effects. Quarterly sales declined by 2% year-over-year, as did operating income, with the company citing coronavirus-related weakness in China. MKC, like many other firms, has withdrawn its full-year guidance but said it plans to resume guidance when it reports Q2 earnings in June 2020. McCormick also said it will "moderate the pace of its business transformation investments and has delayed its ERP system replacement program" to maximize its financial flexibility.

This Dividend Aristocrat, which boasts 34 consecutive years of dividend hikes, has a reasonable 43% payout ratio that should ensure continued income growth. Downgrades to its earnings estimates have the stock trading at a forward P/E roughly on par with its five-year average, but interesting is the decline in its price/earnings-to-growth ratio, or PEG, which measures value in relation to growth. McCormick now trades at a PEG of 1.66, where any figure above 1 is considered expensive - but that figure is roughly half its five-year average PEG of 3.2.

McDonald's

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Market value: $125.3 billion

Dividend yield: 3.0%

Performance since 2/19/20: -22.0%

Fast-food icon McDonald's (MCD, $168.13) is the world's leading global foodservice retailer and operates more than 38,000 locations in more than 100 countries and serves more than 70 million customers per day. Approximately 93% of the company's restaurants are independently owned and operated.

Last year, McDonald's surpassed $100 billion in system-wide sales and achieved 5.9% worldwide comparable-sales growth (stores open 12 or more months) - its highest such gain in more than a decade. The company's Velocity Growth plan, designed to retain existing customers, regain former customers via enhanced food quality, convenience and value and encourage more frequent visits with coffee and snacks has fueled three straight years of rising customer count.

McDonald's also delivered on its pledge to return $25 billion to investors, over a three-year span, via dividends and share repurchases. MCD's payout has risen 43 years in a row, and its excellent free cash flow (which exceeded $5.7 billion last year) provides secure coverage of the company's dividend and debt service. That said, the company is putting a $15 billion share buyback plan on hold and making its dividend a priority in response to the coronavirus outbreak.

The Dividend Aristocrat, which is off more than 20% through this bear market, trades at less than 20 times forward earnings estimates and 16 times cash flow - that's cheaper than its historical averages on both counts.

SEE ALSO: The 12 Best ETFs to Battle a Bear Market

Becton Dickinson

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Market value: $60.4 billion

Dividend yield: 1.4%

Performance since 2/19/20: -13.0%

Becton Dickinson (BDX, $222.87) supplies medical products and devices, laboratory equipment and diagnostic tests worldwide. The company operates in three segments - medical, life sciences and interventional, and grew its interventional business significantly through the 2017 acquisition of fellow Aristocrat CR Bard. Becton Dickinson's customers include hospitals, laboratories, the pharmaceutical industry and the general public.

The recall of its popular Alaris infusion pump caused results to fall short of expectations last quarter, but Becton Dickinson continues to guide for rising 2020 sales and EPS, which it expected to be fueled by the launch of approximately 250 new products for the interventional market.

BDX also is a player in the battle against the coronavirus. It recently secured European Union approval for a COVID-19 test that can test 24 samples simultaneously and generate results in under three hours. It is also seeking emergency FDA approval for its molecular diagnostic coronavirus test.

Earnings growth has been inconsistent due to acquisition costs, but Becton Dickinson has delivered 19% yearly growth in EBITDA (a measure of operational profits) over the past five years. That, and a low 27% payout ratio enhance the safety of its dividend.

Becton Dickinson's shares are trading at a slight discount to their historical forward P/E and price-to-cash flow metrics, but then, they haven't really declined much. BDX is off just 13% given that the pandemic isn't hampering demand for many of its products.

Dover

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Market value: $12.4 billion

Dividend yield: 2.3%

Performance since 2/19/20: -27.0%

Dover (DOV, $85.64) is a diversified industrial manufacturer of engineered products for aftermarket vehicle servicing, solid waste handling, specialty pumps and refrigeration and food equipment.

Most of Dover's products are components of a larger system, where value-in-use and switching costs far exceed the cost of the product itself. The repair and replacement nature of its product lines, along with high recurring demand (30% of sales), in theory should make Dover more recession-resistant than other industrial manufacturers. But its shares are slightly underperforming the market through the current bear run.

That said, DOV stock has earned upgrades from Goldman Sachs, Morgan Stanley and JPMorgan over the past couple weeks. Goldman's Joe Ritchie, for instance, lowered his price target from $119 to $98 but upgraded his rating to Buy, saying Dover has "significant margin runway" and is much better positioned for the current economic downturn than in previous cycles.

Dover has a 64-year track record of dividend growth, and has improved its payout by an average of 8.7% annually over the past five years. This exceptional record of dividend growth is likely to continue due to Dover's modest 31% payout, proven ability to convert most of its earnings to free cash flow and solid balance sheet.

DOV shares typically aren't expensive to begin with, but a forward P/E below 14 and a price-to-cash flow of 13.3 are both a few points below their historical norms.

SEE ALSO: 11 Best Stocks to Ride Out the Coronavirus Outbreak

Medtronic

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Market value: $123.4 billion

Dividend yield: 2.4%

Performance since 2/19/20: -19.1%

Medtronic (MDT, $92.05) develops medical devices and solutions for minimally invasive surgeries, cardiac and vascular treatment, restorative therapies and diabetes management. The company operates in more than 150 countries; its products have improved outcomes for more than 75 million patients.

And particularly noteworthy right now: MDT is a leading manufacturer of ventilators. In fact, it's in the process of more than doubling ventilator manufacturing capacity to meet unprecedented coronavirus-related demand.

Medtronic targets 8% annual EPS gains and a steadily rising dividend, which the company will achieve by expanding its development pipeline and new product launches and increasing its foothold in emerging markets, where growth is consistently in the double digits - an expectation that might need to be slimmed down somewhat, if only in the short term.

Nonetheless, this exceptional company has produced average annual dividend growth of 14% over the past five years, thus the payout has nearly doubled in that time. Medtronic has been among the ranks of the Dividend Aristocrats for nearly two decades, by virtue of 42 consecutive dividend increases.

MDT currently trades at a lower forward P/E and price-to-cash flow multiples than its five-year averages. But Medtronic isn't just about value - it's about the potential for future growth well after this pandemic has passed. SunTrust analyst Kaila Krum (Buy, $130 price target), for instance, is bullish about the company's renal denervation therapy, writing, "After a turbulent history of US pivotal trial failures and efforts by several companies in renal denervation, we're pleased to see steady progress towards FDA approval. We think Medtronic will be first to market and that the opportunity could be $1B market by 2026."

Emerson Electric

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Market value: $28.5 billion

Dividend yield: 4.3%

Performance since 2/19/20: -35.1%

Emerson Electric (EMR, $46.63) is a global manufacturer of automated solutions for the chemicals, energy, power generation, pharmaceutical and food and beverage industries, which all make up two-thirds of its sales. EMR also provides commercial and residential solutions for heating and cooling applications, commercial and industrial refrigeration, and cold chain management.

The Automated Solutions business has an installed base of $115 billion worth of equipment, which drives recurring sales from equipment upgrades and service contracts. The Commercial and Residential Solutions business is resilient thanks to the recession-resistant nature of its end-markets, not to mention its proprietary technology.

EMR's problem right now is its connection to the energy sector, which is getting hammered thanks to plummeting oil prices. That said, there's a real growth opportunity developing in its Industrial Internet of Things, which manages things such as data collection and systems controls.

Emerson Electric has raised dividends 63 years in a row, testifying to the company's ability to reward investors even during economic downturns. Dividend payout targeted at 50% of free cash flow leaves a margin for safety even if coronavirus effects are worse than expected. The company had already been planning for a challenging 2020 and has initiated multiple programs designed to trim expenses and bolster margins. It's further supported by a balance sheet rated "A" by Standard & Poor's.

And EMR is genuinely cheap right now. Its forward P/E of 12.7 is roughly a third cheaper than its five-year average, and its price-to-cash flow of 13.3 is about a 40% discount to its historical average.

SEE ALSO: 30 Massive Dividend Increases From the Past Year

Automatic Data Processing

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Market value: $59.5 billion

Dividend yield: 2.6%

Performance since 2/19/20: -24.0%

Automatic Data Processing (ADP, $137.82) is a world-leading provider of cloud-based human capital management solutions (HCM) for areas such as payroll processing, benefits administration, human resources, regulatory compliance and insurance services. The company serves over 810,000 clients in 140 countries.

ADP benefits from this large installed customer base as well as strong client retention, with most customers averaging 11 years with company. These characteristics of its business support high recurring revenues and good margins. Acquisitions and organic growth have enabled ADP to deliver 8% annual EPS growth over the past 10 years. Dividends have risen 45 years in a row, including a 3% uptick last year.

It's no wonder that ADP has taken a hit amid the bear market given what a potential recession could mean for many of its customers. That said, the company so far has tacked on expenses - in the form of a $1,000 check to every one of its employees, to be sent out in April - rather than reduced headcount so far, which is an encouraging sign. And in general, ADP's entrenchment should serve it well in an economic recovery.

In the meanwhile, ADP has an AA credit rating from agencies, low debt representing just 17% of capitalization and robust free cash flow that grew to $2.2 billion last year. That's enough to cover the dividend twice over. Meanwhile, ADP's forward P/E and price-to-cash flow are both several points lower than their historical averages.

Ecolab


Market value: $46.7 billion

Dividend yield: 1.2%

Performance since 2/19/20: -23.3%

Ecolab (ECL, $161.40) is the worldwide leader in water treatments, hygiene and energy technology and services. The company provides water treatment processes and technologies to the food and beverage, paper, life sciences and manufacturing industries and specialized cleaners and sanitizers to foodservice, healthcare, lodging and education industries. In its process chemicals and water treatment business, Ecolab serves the oil and gas, refining and petrochemical industries.

Ecolab's earnings growth has been solid and consistent, averaging close to 12% annually over the past 10 years. Like some Dividend Aristocrats, ECL's yield isn't much to talk about, at 1.2% despite the stock's 24% drawdown. And average annual payout growth of 7.3% over the past half-decade has been good, albeit not great.

But it's a safe dividend that only represents 35% of profits. It's also paid by a company whose free cash flow could pay off its debt within four years. And while Ecolab is hardly inexpensive compared to the broader market right now, it is cheaper than it has been on average by most metrics - P/E, forward P/E, price-to-cash flow and price-to-book.

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