Bear markets come and go, and these 3 dividend aristocrats keep paying

Stocks have plunged into another bear market this year after falling more than 20% from their recent peak. Things could get worse before they get better, which could cause some companies to run into financial trouble. But while it is unclear when this bear market will end, it will undoubtedly follow the pattern of its predecessors and eventually give way to a new bull market.

For this reason, it’s best to shift your focus from the current bear market to companies that have proven their ability to continue growing regardless of market conditions. Three stocks that have generated decades of steady dividend growth are Stanley Black & Decker (NYSE: SWK), Emerson Electric (NYSE: EMR)and Nucor (NYSE: NUDE). Here’s why our contributors think these dividend aristocrats are great stocks to consider buying in the current bear market.

Focus on the long term

Reuben Gregg Brewer (Stanley Black & Decker): Most people think of things like food as necessities, but look at Stanley Black & Decker’s product portfolio, and it’s filled with tools that are essential to get things done. Good luck building a house without a saw or a hammer. Which helps explain why the company’s business has been so resilient over time. And why it’s a Dividend King with 55 consecutive annual dividend increases.

That said, it’s not always easy to hang on to as this industrial stock has heavy short-cycle activity. In this case, that means many of Stanley’s tools are sold to consumers through hardware stores. Consumers tend to react quickly to economic downturns while industrial and professional customers tend to be a bit more resilient. Retail sales have taken a noticeable hit so far in 2022 as the economy teeters on the brink of a recession, which is one reason management has significantly lowered its guidance for the year. whole.

But the dividend was increased in September, suggesting the company is confident it can weather this tough time as it has with so many economic and market downturns before. Meanwhile, Wall Street doesn’t appear to be giving the company the benefit of the doubt, halving the stock price and pushing the dividend yield to an all-time high of 3.8%.

If you can manage a contrarian position, this reliable dividend payer looks like a bear market buying opportunity. Notably, short-cycle companies tend to recover as quickly as they falter, so the high return here could be short-lived.

65 and over

Matt DiLallo (Emerson Electric): Emerson Electric has been a mainstay of sustainability over the years. The automation and climate solutions company has steadily increased revenue, earnings and cash flow through numerous economic cycles and bear markets. This is evident in the dividend, which has increased for 65 consecutive years. This not only qualifies him as a dividend aristocrat, but also places him in the even more elite class of Dividend Kingsthat have generated 50 or more years of dividend growth.

Although Emerson Electric is not immune to bear markets (stocks are down more than 15% from their recent peak), it has the financial strength and business mix to better weather these storms than many other companies. This is due to the emphasis on automation, which saves companies money. As a result, demand for its services holds up relatively well during economic downturns.

The company complements its resilient business with a top-notch financial profile. Emerson Electric has an A-rated credit, giving it tremendous financial flexibility. During this time, it produces relatively stable cash flows. This gives him the funds to reinvest in his business to drive growth, including a long history of accretive acquisitions.

It also has an excellent track record of returning capital to shareholders through its growing dividend and a significant share buyback program that has steadily reduced its outstanding shares.

With the current bear market weighing on stocks, Emerson Electric’s dividend yield has risen to 2.7%. For this reason, income-seeking investors can earn a higher yield on this rock-solid dividend growth stock.

This dividend keeps growing

Neha Chamaria (Corner): Nucor is the kind of stock that tends to get hammered during bear markets, especially if driven by fear of an economic downturn. The company manufactures steel, and a downturn hurts manufacturing activity and demand for its commodity. Yet it’s also the type of stock that continues to pay dividends, regardless of the state of the economy or the stock markets. In fact, it has increased its dividend every year for the past 49 years.

Such an outstanding track record for a cyclical stock would not have been possible if Nucor had not prioritized investments in growth and balance sheet strength over dividends and share buybacks. While growth initiatives are adding to its cash flow, the focus on financial strength ensures that the steel stock can service its debt even in difficult times and still has enough cash to return to shareholders in the form of dividends.

In fact, I would expect a fairly large increase in dividends towards the end of this year, even in a bear market. The reason for this is its earnings growth: Nucor appears on track to achieve record numbers for 2022 and plans to pay out almost 40% of its earnings in the form of dividends. To give you an idea of ​​how big the dividend increase could be, consider that in 2021 (which was also a year of record earnings), the company increased its annual dividend by 23%.

NUE data by YCharts.

Even if you don’t like Nucor’s 1.7% dividend yield, its dividends have grown at a much faster rate in recent years, and that dividend growth has boosted the stock’s total returns significantly. It’s a trend that could continue no matter what the stock market does.

10 stocks we like better than Stanley Black & Decker
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Matthew DiLallo has no position in any of the stocks mentioned. Neha Chamaria has no position in the stocks mentioned. Reuben Gregg Brewer holds positions at Nucor and Stanley Black & Decker. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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