Dividend-Growth Stocks Offer Buying Opportunity Through Recession

Dividend-Growth Stocks Offer Buying Opportunity Through Recession

Investing.com  | Mar 20, 2020 15:27

The S&P 500’s 30% plunge in the past month, the fastest in the stock market history, has created buying opportunities for both retail and wealthy investors.

Some of the world’s wealthiest people have spent more than $1 billion combined to boost their stakes in companies as markets around the world tanked amid the coronavirus pandemic, according to a report in Bloomberg.

S&P 500 Weekly Price Chart

Activist investor Carl Icahn increased his holdings in Hertz Global Holdings (NYSE:HTZ) and Newell Brands (NASDAQ:NWL), while Warren Buffett’s holding company added shares of Delta Air Lines (NYSE:DAL), according to regulatory filings.

These corporate executives will have their own reasons for buying these stocks in which they already own large shareholdings, but the field is also open for small investors who want to take a long-term approach to their investing.

Tested Strategy

One tested strategy to take advantage of this massive readjustment in markets is to buy the shares of companies that are cash rich, have a history of dealing with recessions and pay regular dividends. In other words, buying solid dividend-growth stocks is one of the safest ways to play this weakness for risk-averse investors.

The companies to focus in this category are those which have at least boosted their dividends in each of the last 10 years, the ones known as “dividend aristocrats.” These stocks have beaten the broader market and outperformed those stocks that simply have a high dividend yield, according to a recent note by Credit Suisse.

“Dividend aristocrats have outperformed the market by 12% over the last 3 years. The group has also strongly outperformed a simple strategy of buying just high yielding stocks,” the note said.

Let’s take the example of health-care stocks that are considered defensive because health insurers, pharmaceutical companies and medical-device makers generally perform better in times of economic uncertainty.

Medtronic (NYSE:MDT) is one such stock which is well-positioned to not only beat the market in this downturn, but also provides good sustainable returns.

Medtronic is a less well known healthcare stock that we like due to the company’s strong market position and its hefty payouts. The world’s biggest medical device maker controls 50% of the global pacemaker market. It’s also a leader in products that assist with spinal surgeries and diabetes care.

No matter in which direction the economy goes, stocks like Medtronic will continue to churn out cash. The company has a long-term strategy to pay out 50% of its free cash flow to shareholders as dividends. The company pays $0.54 a share quarterly payout, with an annual dividend yield of 2.9%. During the past 5 years, the average dividends per share growth rate was 12.90% per year. The shares closed yesterday's session at $79.22.

Medtronic Weekly Price Chart

Coca-Cola Company (NYSE:KO), the world’s largest beverage company, is another solid dividend growth stock. The company owns or licenses more than 500 soft drinks including sodas, bottled water, juices and iced teas, sells its products in more than 200 countries and has 21 individual brands that generate $1 billion or more in annual sales such as Sprite, Minute Maid and Fuze Tea. It's also the market leader across a number of its core product categories.

The company has been able to increase its dividend for 56 years in a row. That's more than enough proof of the strength of the brand as well as the company’s ability to perform during recessions, market downturns and changing consumer preferences.

Coca-Cola Weekly Price Chart

Earlier this year, Coca-Cola boosted its annual dividend by 2.5% to $1.64 a share. The stock closed yesterday at $41.83. With an annual dividend yield of 3.66%, KO shares are ideal for those who want to earn growing dividends and have a long-term investment horizon.

Bottom Line

Healthcare and consumer staple stocks, such as KO and Medtronic, are dividend growth stocks that could outperform the broader market if we’re in for a deep recession in 2020. Diversifying your portfolio with defensive stocks that pay regularly growing dividends is always a good strategy in times of economic turmoil.

Investing.com

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Canada) English (Australia) English (South Africa) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.

';