Guest contribution by ValueWalk
Last year was considered to be one of the most challenging years on the stock market for investors, as sticky inflation and back-to-back interest rate hikes by the Federal Reserve left investors feeling hawkish over the potential of a soft landing.
Further down the line, macroeconomic problems continued to give investors a hard time.
Many were faced with having to make difficult decisions and swiftly adjust their position, as a tight labor market, droves of layoffs in the tech industry and global political tension turned markets.
By the end of last year, the market experienced one of its worst-performing years on record.
In total, the S&P 500 fell by 19 percent, making it one of the 10 worst-performing years for the stock index in over 90 years. The tech-heavy NASDAQ was hit hardest, falling 5,179 points, or 33.1%. Both the Russell 2000 and the Dow Jones Industrials were also down 21.6% and 8.8%, respectively.
For much of last year, investors remained skeptical over the possibility of improving conditions, as analysts forecasted a mild recession to the close of 2022 and a full-blown economic recession for the better half of 2023.
It may seem as if the situation has slightly started improving on the back of cooler inflation data, which reached a 12-month low in March 2023, with the Consumer Price Index (CPI) dropping from 6% in February to 5% the following month.
While strong economic indicators have slightly helped turn the direction of the needle on the stock market, there’s still a long way to go before we can see the returns we once enjoyed in the pre-pandemic era.
Taking up a new position
With conditions starting to slightly improve, many investors and traders continue to hold a long and steady position on the stock market, as indications of a possible recession and market correction remain a threat to their portfolios.
Instead of doubling down on single stock picks across different categories, many investors are rapidly diversifying their portfolios with ETFs, bonds, and other options. A ring to investors’ ears over recent months was a select-few dividend stock in the defensive or consumer staple category, with household names riding out the declines and heading north.
In the past investors might have shrugged off high-yielding dividend stock options for more advanced-performing stock picks such as tech, software, and finance. Although these options provide steady growth, an economic cold snap has turned conditions increasingly sour, leaving these options on the back burner, for now at least.
In a similar vein, many novice investors with a low risk appetite have taken up brokers that provide them with high market exposure, while being more affordable than traditional options.
Well-known discount brokers such as Fidelity, Interactive Brokers, J.P. Morgan, E*Trade and Robinhood among other names have seen steady interest as they provide some of the lowest fees and commission structures on the market.
Investors have also been looking towards newer brokers such as Fusion Markets, Pepperstone and IC Markets that provide more reliable brokerage options against the backdrop of broader market difficulty and ongoing macroeconomic challenges.
This attitude comes at a crucial time where many investors are looking to get the most out of their returns. According to the Securities and Exchange Commission (SEC), 0.50% annual fees and commission can lose the average investment portfolio of $100,000 roughly $10,000 over a period of 20 years.
Considering this from an angle of a short or long-term investor, online brokers often hold more to their case than simply allowing novice and semi-professional investors access to capital markets.
Instead, they have become an inexpensive option for many first-time investors to leverage sophisticated trades, whether it’s for stocks, bonds, ETFs, or perhaps mutual funds. More to this case, is that some online brokers are optimized for specific clients and trades. Some platforms may give investors access to a variety of investment vehicles, while others might limit the options investors can choose from.
Some actions might need further consideration, such as a dollar-cost average strategy, and minimal or tight spreads that can also help more advanced investors to build more appropriate investing techniques. This can help investors to avoid bad market timing and avoid the temptation to purchase investment vehicles during periods of high market volatility.
On top of this, these platforms have become a valuable tool through which investors at any time or point in their investment journey can access credible, and often reliable educational resources that only help to further strengthen their investing strategy.
It’s however in the best interest of both novice and seasoned professionals to look for broker options that suit their investment needs, while understanding the fees and commission charges related to their accounts.
High market volatility, against the backdrop of wider macroeconomic problems means that investors need to consider their risks, and what long-term costs are affiliated with using digital brokers.
Five picks worth considering amid bearish sentiment
While it looks as if conditions might continue to improve in the coming months, as the Federal Reserve gives a hawkish approach to further monetary tightening, amid a possible banking crisis following the collapse of Silicon Valley Bank and Signature Bank; now may be the time for investors to buy at the bottom and hold steady on these dividend picks for the next few years.
Procter & Gamble (PG)
P&G (PG) is not only a household name in the consumer goods department, as the company has paid dividends for around 132 years, with 66 consecutive years of dividend increases. This isn’t something surprising, as the company holds a hefty list of brands and products in its portfolio.
The company owns brands such as Olay, Pampers, Tampax, Oral-B, Fixodent, and many others in the personal care and hygiene category. The list of strong consumer-oriented brands and products has given P&G the upper hand compared to other defensive stock picks.
The most recent quarterly dividend payment came to $0.913 per share, with the company paying 77% of its free cash flow over the last four consecutive quarters. Its current stock yield comes in at 2.50%, slightly lower than some other high-performing stock options.
P&G holds a steady position, as executive management has in recent years shed most of its underperforming brands and products, and invested heavily in further product development for its current list of brands. And while prices may have jumped by 5% in recent months, consumers will remain loyal buyers.
A second solid option on our list is pharmaceuticals giant, Merck (MRK), which generates strong cash flow from its products and services in oncology, hospital care, and a selection of antiviral products.
While the company experienced steep declines closer to the end of 2021, the upside came again in the latter half of last year, with prices up roughly 33% between 2022 and 2023. Year-to-date (YTD) performance has been steady, with share prices climbing 32%.
Dividend yields are steady at 2.6%, and it has a healthy balance sheet, despite experiencing declines due to currency headwinds and a decrease in sales of its COVID-19 treatment Lagevrio. Despite these downturns, revenue increased by just under 3% ending the year in December 2022.
Analysts are positive that the company is heading in the right direction, following the acquisition of bioscience firm Prometheus for just under $11 billion. This will give Merck a foothold to decrease patient loss and help increase its M&A portfolio.
Let’s get right into the consumer staples side of things, starting with Archer-Daniels-Midland (NYSE: ADM), a transportation and processing company in the food commodities industry. Oftentimes analysts see ADM as an inflation hedge, purely because the company will continue to benefit from ongoing inflationary conditions and supply-chain disruptions.
YTD’s performance has been sluggish, with prices down 9%, but analysts remain positive that in its upcoming earnings report, the company is set to post quarterly earnings of $1.71 per share, with a current dividend yield of 2.20%.
Zacks Rankings have placed moderate estimates on ADM, as its forward-looking guidance could see a decrease in quarterly revenue of 0.70%. There is however an upside to this, the company has shown a healthy balance sheet for most quarters, even as other long-term problems such as climate change, tight labor market conditions, and rising wages might impact their bottom line performance.
No other household name is more recognizable than the three golden arches of the consumer fast-food franchise, McDonald’s (MCD). The company is considered one of the strongest consumer household names, with more than 40,000 locations globally according to the most recent figures provided by Statista.
For the last several decades since 1976, the company has paid quarterly dividends, with current payouts at $1.81 per share. On average, the company’s dividend yield stretches between 2.09% and 2.11%, above the average of the S&P 500 of 1.63%.
While consumers may be cutting back on other expenses, affordable, fast, and reliable food is one thing that they will keep spending on, regardless of whether prices increase or not.
McDonald’s is a long-term purchase that provides safe dividends, overall stock performance has remained steady, with year-over-year (YoY) growth going up by 13.84%.
Despite ongoing spikes in inflation, globally, the company still managed to grow by 11%, a good indication that consumers have continued supporting the fast-food chain even as the company has had to adjust its prices in recent months to keep up with rising costs.
Matador Resources (MTDR)
While consumer staples and pharmaceuticals remain defensive stock options, companies in the energy and utility industry are a close second option for investors looking for safe, reliable, and dividend-paying companies.
Matador Resources (MTDR) is one of those names, and although the global shift to cleaner and more sustainable energy has driven up the performance of green energy stocks, MTDR remains a solid pick for those that remain heavily invested in the fossil fuels industry.
MTDR is an oil and gas exploration company, and overall, stocks have seen better days, much like the rest of its fellow energy stocks. YTD performance is down 4.38%, and YoY prices dropped by 12.56%, perhaps not the most attractive site for any investor. Currently, MTDR has a dividend yield of 1.18%, lower than our other picks on this list.
Although conditions have been sluggish in terms of stock performance, MTDR holds a steady position following the output cut decision by the Organization of the Petroleum Exporting Countries (OPEC). Ongoing geopolitical tension between Russia and Ukraine has also been a headwind for Western countries, with a decreased output of both oil and gas.
Combined with lower output, ongoing demand, and an increase in commodity prices, you end up with a company that holds a firm position in the short and long-term gains. There is however the threat of sustainable and green energy utility providers, but as long as consumers need to switch on the lights or drive their cars, MTDR will be at the drilling point.
It hasn’t been an easy exploration for investors having navigated the market, as ongoing broader macroeconomic problems cause major headwinds for both consumers and investors. Although conditions may have slightly stabilized in recent months, there’s still a downside that economic growth could go south in the coming year.
Holding out, and making sure you’re in a safe position requires you to hold a steady position and aim for long-term gains, but keep in mind that dividend-paying stocks can help you through those challenging times when conditions have completely deteriorated.
If you are interested in finding high-quality dividend growth stocks, and other income investing opportunities, the following Sure Dividend resources will be of interest to you.
Blue Chip Stock Investing
- 20 Safe High Dividend Blue-Chip Stocks With Low Volatility
- 10 Best Performing Blue Chip Stocks Over The Last 12 Months
- 10 Blue-Chip Tech Stocks For Growing Dividends
Other Sure Dividend Resources
- Dividend Kings: 50+ years of rising dividends
- Dividend Champions: 25+ years of rising dividends
- Dividend Aristocrats: 25+ years of rising dividends and in the S&P 500
- Dividend Achievers: 10+ years of rising dividends and in the NASDAQ
- High Dividend Stocks: 4%+ dividend yields
- Monthly Dividend Stocks: Individual securities that pay out every month
- Blue Chip Stocks: Kings, Aristocrats, and Achievers
- MLPs: List of MLPs and more
- REITs: List of REITs and more
- BDCs: List of BDCs and more