As the growth stock rally runs out of momentum and the U.S. economy shows signs of weakening, investors may want to focus on names that check two boxes for high-quality companies, according to Wolfe Research. So-called dividend aristocrats are typically defined as companies that have raised their per-share payout every year for at least 25 years. Buying those stocks is a popular investment strategy for income-focused investors looking for high-quality options. Wolfe strategist Chris Senyek said in a note to clients Wednesday that some of those aristocrats also score highly on another quality indicator — net stock buybacks. “We’ve found Consistent Buybacks (companies with a net share count decline for at least 10 consecutive years) and Dividend Aristocrats (25 years of consistent dividend growth) to be the top performing cash usage themes over the past 20+ years. These investment strategies have performed particularly well into a slowing economy and/or recessionary type environment,” Senyek said. The stocks on both lists include Lowe’s , Genuine Parts and Colgate-Palmolive . Of the stocks listed above, Colgate-Palmolive has the highest dividend yield at 2.6%. However, shares of the consumer products giant are down 6% in 2023. And of the 22 analysts who cover the stock, 12 have hold ratings and one has a sell, according to Refinitiv. On the other hand, Lowe’s has only slightly underperformed the broader market this year, with shares up more than 15%. The stock is also more well liked on Wall Street, with 19 of 35 analysts giving Lowe’s either a buy or a strong buy rating, according to Refinitiv. Lowe’s has a dividend yield of 1.9%. The thinking behind looking for companies that consistently raise payouts or reduce share count is that those factors can be a sign of healthy cash flow. Dividends tend to be sticky, as corporate managers are often reluctant to raise them if they don’t feel confident they can support those payments indefinitely. And companies whose buybacks actually reduce the number of shares outstanding show that they are doing more than just offsetting stock options given to employees. Companies with that level of cash flow could be seen as a safer bet heading into an economic slowdown, as they would be in a better position to weather a period of depressed sales. To be sure, these investing strategies have underperformed in 2023. The ProShares ETF tracking the group, NOBL , has a total return of just 6.4% year to date, according to FactSet. The Invesco BuyBack Achievers ETF (PKW) , which buys companies that have reduced their share count by more than 5% over the past year, is up about 9.8% year to date. — CNBC’s Michael Bloom contributed reporting.
