Worried About a Fading Rally? Consider These 3 Dividend Stocks

Key Points

• Q2 earnings have been strong overall, but cracks are starting to form.
• Employment data points to a weakening labor market, and companies that miss earnings projections suffer sharp declines.
• With volatility returning, it might not be a bad time to reinforce your portfolio with dividend-paying stocks.

Investors have checked plenty of boxes off their 2021 market bingo cards lately: a V-shaped recovery in the S&P 500 after a quick bear market, a wild cryptocurrency rally, and beaten-down meme stocks generating short squeezes.

Investors also likely remember how quickly that market became overvalued at the end of 2021, and the succeeding 2022 bear market that lingered for nearly a year as the Federal Reserve committed to crushing inflation.

The current market environment echoes 2021’s excess, and volatility has returned in early August. Is it time to consider more defensive positioning? If risk is weighing on your mind, the Dividend Aristocrats are here to help, and we’ve identified three with sturdy payouts for income and growth. 

Earnings Remain Strong, But Warning Signs Beginning to Emerge

Meme stocks and crypto aren’t the only things driving investors to question what inning this rally is in. Despite the president’s protestations, jobs data continues to point to a shaky labor market following massive downward revisions in May and June numbers from the Bureau of Labor Statistics (BLS).

Only 73,000 jobs were added in July, and unemployment ticked up to 4.2%. Adding to market worries, the Personal Consumption Expenditures (PCE) price index came in at 2.6% for June, its hottest reading since February.

Market indices have ridden strong earnings to new all-time highs this summer, especially AI hyperscalers that continue to surpass their lofty expectations.

The market is becoming increasingly concentrated, and companies that gave less-than-stellar Q2 reports were swiftly relieved of their gains. Can AI capital expenditure spending support the entire S&P 500?

We might find out since the Magnificent Seven can now swallow more than 400 of the other 493 companies in the index.

S&P 500 valuations are getting stretched near the upper bound of historical levels, which helps explain why expectations are so high and companies that miss targets get crushed.

Winners and losers are beginning to appear, and if you aren’t a stock picker or market timer, you might be looking for assets that can provide a moat from volatility. Dividend stocks are usually established companies with steady, predictable profits.

You might not get the outsized rewards of Meta Platforms Inc. NASDAQ: META or Microsoft Corp. NASDAQ: MSFT, but you likely won’t need to worry about 40% drawdowns either (something META and MSFT have each suffered twice in the last five years).

Buffer Your Portfolio With These Dividend Aristocrats

What’s a Dividend Aristocrat? A company in the S&P 500 with at least a 25-year history of raising dividend payouts. To qualify for this index, companies must increase their dividend payout at least once a year, and failure to do so results in ejection.

Membership in the S&P 500 guarantees minimum size and liquidity requirements, so Dividend Aristocrats are often blue-chip stocks with long histories. The following three companies fit this definition and can boost your portfolio with income during turbulent times.

Johnson & Johnson: 6 Decades of Dividend Growth

Johnson & Johnson NYSE: JNJ has been a model of stability and growth for more than 60 years.

The company’s diverse pipeline of pharmaceuticals and medical devices gives it a variety of dependable revenue streams, and its TAR200 bladder cancer drug was granted Priority Review by the U.S. Food and Drug Administration (FDA) in July.

During the company’s Q2 earnings report, the CEO Joaquin Duato projected TAR200 sales could hit a peak of $5 billion.

JNJ beat analysts’ expectations on both revenue and EPS in Q2, with sales growing 5.8% year-over-year (YOY).

JNJ is also a prestigious member of the Dividend Aristocrats with a 64-year history of payout raises. The dividend has yielded between 3.03% and 3.47% over the last two years, with a current yield of 3.05% and a dividend payout ratio (DPR) of 55.6%.

A payout rate below 60% backed by JNJ's robust cash flow indicates a secure dividend with even more room to grow.

Cincinnati Financial: Lower Payout But Higher Security

Cincinnati Financial Corp. NASDAQ: CINF might not have the dividend yield of some of its peers (2.3% compared to an average of 5.6% in the finance sector).

But it has a 65-year track record of raising dividend payouts, and its 30% DPR indicates little strain on payout sustainability.

You won’t exactly need a Brinks truck, but you’ll sleep easy knowing a predictable payout is coming each quarter. CINF handily beat its Q2 EPS estimates by nearly 30%, and revenue still grew 15% YOY despite a slight projection miss.

After the Q2 earnings report, two of the five analysts covering the stock boosted their price targets.

Roth Capital increased its target to $175, while Keefe, Bruyette, and Woods boosted it to $168. These two figures average $171.50, which indicates upside of more than 10% from the stock’s current level.

T. Rowe Price: High-Yield Backed Up by Cash Flow

T. Rowe Price Group Inc. NASDAQ: TROW is one of the world's largest asset managers and pays the highest dividends in the healthiest industry.

The dividend yield is currently 4.8%, the sector average for asset managers.

However, despite the high payout, the DPR is a manageable 56.8%, well above the, and the company has been raising its payout for 39 years. 

How does TROW support such a healthy dividend? A strong brand reputation helps, as does an impenetrable cash position on its balance sheet.

The company boosted its cash position by more than 25% between Q1 2023 and Q1 2025, and operating cash flow in Q1 2025 was a record $611 million.

The yield is high, but TROW has the financial bandwidth to maintain it.