Since late March, the S&P 500 index has partially climbed back from the coronavirus-driven market sell-off that began in February. However, as of Monday, April 13, the index is still down more than 18% from its all-time high, set on Feb. 19.
During times like these, many investors are looking for rock-solid dividend stocks to help them weather the turbulence, and myself and many others take advantage of lower stock prices to lock in a high long term yield on cost.
When you invest during a bear market in a solid company with a history of increasing its dividend payments, you obtain a degree of comfort that you’ll receive cash flow while you own that stock. Even if the shares lose value during a bear market, you’ll receive income from your dividends.
During uncertain economic times like today, it’s wise to invest thoughtfully. Dividend stock investing during a bear market may reward patient shareholders with long-term profits. Below are stocks I have focused in on for my long term investments, primarily for dividends for the very long term (forever being ideal).
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When it comes to a tried-and-true dividend stock, it’s hard to beat Coca-Cola (NYSE:KO). And investors can use the argument, if it’s a good enough for Warren Buffett, it’s good enough for you. The potential anchor to the stock has been that soft drinks, particularly of the sugary kind that Coca-Cola is known for, have sort of fallen out of favor. Part of it is due to concerns over childhood obesity and some is because of the changing tastes of consumers who are demanding various options in every aspect of their life. But Coca-Cola is navigating this pivot well. First, they’ve invested in other brands. This strategy is providing an effective hedge against potential revenue losses to the flagship brands.
And the company just released its own energy drink, Coke Energy, in January and the company is looking to get into the caffeinated seltzer and flavored water arena. Analysts are becoming bullish on the company in advance of its earnings which the company reports on January 30.
Sector: Consumer Staples Industry:Soft Drinks
Recession Return: S&P 500 lost 55% from 2007 – 2009; KO shares lost 31%
Dividend Growth Streak: 55 years
Coca-Cola is the world’s largest beverage seller, marketing over 3,900 products under 500 brands in more than 200 countries and territories via 24 million retail markets. The company owns 21 brands that generate over $1 billion in sales including: Coke, Powerade, Dasani water, Simply and Minute Maid juices.
Coke’s wide moat is courtesy of the world’s largest distribution network which has taken over 130 years to build up at a cost of tens of billions of dollars in marketing spending. Smaller rivals simply can’t replicate the company’s reach or brand awareness. As a result, Coke enjoys premium shelf space in almost every retail outlet in the world.
Coca-Cola’s plans for the future include continuing to diversify into healthier options where it has less share today, such as teas, juices, and water. These markets continue to grow strongly in both developed and emerging economies.
Recently this focus on healthier beverages has helped drive mid-single-digit organic sales growth, which is among the best in the industry. Meanwhile, the beverage maker plans to re-franchise its capital-intensive bottling operations (over 900 plants worldwide) which will drastically reduce its annual costs.
The company has had annual dividend increases for 55 consecutive years (since 1963). Management targets a reasonable 75% payout ratio over time and expects to continue to grow the dividend as a function of free cash flow.
While the firm does need to invest somewhat aggressively in beverage categories of the future, Coca-Cola should have flexibility to keep its dividend moving higher along the way. From the company’s excellent credit rating to its recession-resistant portfolio (sales declined just under 5% during the financial crisis), support for the payout is solid.
Meanwhile, investors enjoying Coke’s dividend can also expect below average volatility. During periods of maximum market fear, Coke shares tend to do even better. For example, during the financial crisis shares lost just 31%, outperforming the S&P 500’s slump by about 24%. The bottom line is that Coca-Cola remains one of the safest consumer staple stocks you can own if the economy hits a downturn and brings on a bear market.