If the Iran war drags on longer than expected, investors may want to consider defensive stocks that pay dividends, according to Jefferies. The market has seesawed and oil prices have jumped since the conflict started on Feb. 28. Stocks moved slightly higher on Monday as investors hoped for a potential ceasefire. All three indexes snapped five-week losing streaks last week. Meanwhile, oil remains at over $100 per barrel, with U.S. West Texas Intermediate futures last above $112 per barrel and Brent hovering below $110. While Jefferies' base case is that the Iran war should end in the next few weeks, with oil averaging around $100 the rest of the year, its bear case assumes a longer conflict that sees oil at an average $120 per barrel. "With oil prices rising sharply due to the US-Iran conflict, the risk of stagflation is emerging," Desh Peramunetilleke, head of the firm's quantitative strategy, said in a note Wednesday. He sees that as a low probability right now, but warned "a sustained oil shock could cause demand destruction, pushing costs higher and fueling inflation." If that occurs, Peramunetilleke estimates S & P 500 top-line growth falls by 4.3 percentage points, margins compress by 0.8 percentage points and earnings-per-share growth drops from 18.3% to 8.5%. Given the earnings uncertainty, defensive yield stocks should do well, he said. So, he came up with a list of bond-proxy stocks that are defensive, high-yield, low-growth companies. They also exhibit the lowest beta among dividend strategies, which means they are less volatile and less risky. Peramunetilleke focused on U.S. defensive companies with a market capitalization over $10 billion, a dividend yield above 3% and an EPS compound annual growth rate for 2026 to 2027 between 0% and 10%. In addition, the names have a high earnings certainty and a good track record of dividends, with a cut of less than once every four years. They also have positive free cash flow. Here are some of the stocks that made the cut. Investors get a 3.63% dividend yield with PepsiCo . The snack and beverage giant has been working on narrowing down its product line up and cutting costs across its operations after a deal with activist investor Elliott Investment Manager in December. Pepsi is also lowering its prices on snacks, which will "improve competitiveness and the purchase frequency of our brands," the company's executives said in prepared remarks for its fourth-quarter earnings release in February. PEP YTD mountain PepsiCo year to date The company beat on both the top and bottom line for the quarter as organic sales across its business improved. The stock has an average rating of overweight and 10% upside to the average analyst price target, according to FactSet. Shares have gained 9% year to date. Meanwhile, Verizon 's stock has gained nearly 21% so far in 2026. It also has an attractive 5.76% dividend yield. During its last earnings release in January, the wireless carrier forecast annual profit and free cash flow that topped Wall Street's expectations. Its fourth-quarter revenue also beat analysts' estimates. CEO Dan Schulman took the helm in October and has been working to make the company leaner. In November, Verizon announced more than 13,000 job cuts. "We're just at the beginning of our efficiency journey," Schulman said during the January earnings call. Verizon has an average analyst rating of overweight and 5.5% upside to the average analyst price target, per FactSet. Public Storage also has an average rating of overweight. Its average price target implies it can rally nearly 11%. The real estate investment trust, which owns and operates self-storage facilities, reported a revenue beat for its fourth quarter. Its core funds from operations, which is a measure of operating performance for REITs, also came in above estimates. PSA YTD mountain Public Storage year to date The stock has a 4.26% dividend yield and has gained about 9% year to date. Target is also in the middle turnaround effort and recently laid out its plan to overhaul key categories, including apparel and home. CEO Michael Fiddelke said during the company's investor meeting in March that the retailer is taking steps to improve but the results "don't happen overnight." Yet some effects will be seen right away, he added. "If I were to step back and draw a heat map of the entire store highlighting where we're making changes this year, you'd see more change to what we sell and how we sell it than you've seen in a decade," he said. The stock, which yields 3.74%, is up about 25% so far this year. It has an average analyst rating of hold and 2% upside to the average price target. — CNBC's Melissa Repko and Reuters contributed reporting.
