Guest contribution by ValueWalk
September was a tumultuous time in the market for investors as a sudden turnaround in performance left many investors to flee the market in hopes of parking their cash in recession-proof assets.
While it’s still unclear what is looming ahead, some experts in due time called that the U.S. is currently in a “technical recession” as inflation remains stubbornly high and as the Federal Reserve continues to aggressively hike interest rates.
In September, Federal Open Market Committee Chair, Jerome Powell announced another hike in prime interest rates, raising the federal funds by 75 basis points (bps) to 3.25%. This move marked the third consecutive 75 bps increase for this year.
In the aftermath of the rate hike, markets traded relatively steady, only for investors to experience major headwinds in the better half of the month.
The higher cost of borrowing has also sent shockwaves over the once red-hot housing market that have in recent months cooled down faster than experts predicted. Slowing demand and short supply has seen housing prices decrease for seven consecutive months, leaving many speculating that the downturn could be just as severe as the 2008 housing market bubble collapse.
Real estate investors and house flippers have been at the forefront of the recent turn around in the market. Latest insight indicates that profit margins for house flippers have dropped to 25.9% in August, down from the 30.9% recorded for the same time last year.
Despite the risky conditions, a 2022 Consumer Insight Report by Mynd reveals that younger real estate investors still consider property and real estate investment a smart financial decision when compared to older generations.
The Fed has been under pressure to control red-hot inflation, with Wall Street continuously warning investors and traders of the possibility of a recession more severe than the 2008 economic collapse.
As investors tread lightly through the market, many are looking for ways in which they can recession-proof and diversify their portfolios, long before broader market uncertainty comes crashing down.
In the past, investors looked towards assets that are considered a viable hedge against inflation. Although this has been a hard test of endurance throughout much of the year, we’re now seeing many investors flocking to dividend stocks as a method of procurement and assortment.
Convincing investors on this is no easy caveat, but with no other option to beat the market, several economists and Street experts have voiced the importance of dividend stocks during bear market conditions.
In a recent interview with Ameritrade Network, chief global investment strategist at Charles Schwab, Jefferey Kleintop mentioned that investors should remember the importance of dividend stocks and that in every recessionary bear market through the last five decades, high dividend stocks were able to outperform decreasing markets.
Aside from Kleintop’s comments, a report by Guardian Capital also looked at the significance of dividend stocks and concluded that over the last five decades, companies with free cash flow and strong dividend policies have held strong long-term growth, against non-dividend stocks.
Looking at it from a theoretical aspect, we see how the ongoing conditions could prove why dividend stocks are a smarter, and perhaps safer choice.
With some investors eagerly awaiting to see how the coming months will unfold, the race has now started for them to either diversify their interests or brace for the worst to come.
While we’re still in a relatively safe space between the bulls and bears, let’s review some of the simplest dividend stocks to buy and hold as market volatility only increases risks for investors.
Starting the list off strong is mineral mining giant Rio Tinto (RIO), which operates in more than 40 countries globally, and has a diversified portfolio that includes aluminum, copper, coal, and diamonds, among others which also includes iron ore.
The dwindling economic conditions have made minimal impact on RIO, with stock prices coming down by 3.79% year to date (YTD). While the company has been holding strong, it’s also been actively increasing its capacity in several nations around the world and establishing partnerships to assist with its growing operations.
Stockholders will be able to take advantage of a 12.36% dividend yield from Rio Tinto, a healthy performing stock, and a company that can prove itself against ongoing economic headwinds.
LTC Properties, Inc.
Real-estate investment trust company LTC Properties (LTC) has a lot going on at the moment in terms of market performance. For starters, the company has a healthy balance sheet, and in its most recent earnings call, LTC announced that revenue was up just under 11% year-over-year (YoY) and net cash flow has also experienced positive YoY growth of 198.17%.
Even with the U.S real estate market coming down faster than it did in 2007, RBC Capital recently announced that the company has been working on restructuring to better position itself within the marketplace, and improve its balance sheet. By the looks of it, it’s starting to pay off, and in light of this announcement by RBC, the firm raised its price target on LTC to $44 per share.
LTC pays a 6% dividend, which compared to other competitors in the market is substantially higher considering how broader market and real estate conditions have been eroding throughout the last few months.
Considered one of the few Dividend Kings, Altria Group (MO), which is best known for its flagship brand, Marlboro cigarettes has continued to be an industry leader, amid rising food prices and American consumers adjusting to the cost of living crisis.
In a recent move to diversify its operations, Altria invested more resources in the expansion of smokeless tobacco and wine. The group has a 10% ownership stake in Anheuser-Busch InBev (NYSE: BUD), the multinational drink and brewing company based in Leuven, Belgium.
The Dividend King offers investors an 8% dividend yield. During its second-quarter earnings report, the company reported a 4.1% decrease in YoY revenue, and also a drop in revenue which was down 5.7%. The slowing performance hasn’t scared investors off completely, as MO remains a simple dividend purchase with a steady growth performance.
Universal Corporation (UVV) has been raising its dividends for more than 50 years, making it the second Dividend King on our list of simple dividend-paying stocks investors should buy and hold right now.
The global importer and export of tobacco leaves have kept the company in a solid position throughout the years as it operates between the farmers and manufacturers.
While the industry has seen its fair share of challenges this year, running from supply chain woes to a tight labor market and rampant running inflation, Universal has kept strong even when facing difficult economic conditions.
Currently, UVV has a dividend yield just above 6%, and in its recent quarterly earnings call the company announced a 23% jump in YoY revenue and a 46% increase in ingredient revenue, in part of the company’s acquisition of Pennsylvania-based extract company Shank’s Extracts.
Finishing our list strong is the Australian multinational natural resources company, BHP Group (BHP). The company is a global producer of commodities including steel, coal, copper, and zinc, not to mention iron ore and nickel. With a diversified set of minerals, investors can be sure to enjoy a growth stock that can hold strong performance against economic headwinds.
During its full financial year results, BHP announced a 34% increase in profit, which was mainly due to the strong performance of commodity prices throughout the last few months.
Since the start of the year, BHP has come down roughly 4.40% (YTD), but overall stock performance has been relatively steady against the backdrop of a changing economic cycle. With strong earnings, and an even more positive outlook going forward, BHP Group is a simple purchase for the investor looking to buy now and come back later.
BHP has a dividend yield of 12.6%, with share prices averaging between $47.35 – $79.66 in a year range.
Going forward, investors will need to start looking at stocks that can continue to grow and perform against high market volatility. It’s not to say that these companies on our list will feel the pressure of an economic downturn, but rather it’s important to consider where they operate within their industry and how they’ve positioned their forward-looking strategies.
For some, it may seem like business as usual, but in the case of a broader market decline, investors must seek advice and insight on how to manage their portfolios, and where they can park their cash.
Dividend-yielding stocks are a simple, yet proven way to allow investors better and more leverage, while at the same time beating down on recessionary conditions. There are results in what works, and investors, both new and seasoned, should trust the process and go with what will work for them.
Other Dividend Lists
The following lists are a great way to quickly screen for stocks that regularly pay rising dividends.
- The Dividend Aristocrats List: S&P 500 stocks with 25+ years of consecutive dividend increases.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The 20 Highest Yielding Monthly Dividend Stocks Now: The 20 monthly dividend stocks with the highest current yields.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The 2022 High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The 2022 High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The 2022 Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: