The stock market has been in a bull market for over eight years now, and it's only a matter of time before we see a bear market again. The problem is, no one knows when the bear market will come. That's why investors should take a look at companies built to succeed no matter what kind of market we're in.
We asked three of our investors for stocks made for any market and Kimberly-Clark Corp. (NYSE: KMB), NextEra Energy Partners LP (NYSE: NEP), and PepsiCo, Inc. (NYSE: PEP) made the list for very different reasons. Here's why you should take a look at them today.
Tissues, toilet paper, and diapers
Demitri Kalogeropoulos (Kimberly-Clark): A diverse portfolio of market-leading consumer products tends to perform well through booms and busts. While consumers often make drastic changes to their spending on discretionary purchases like cars and homes, after all, they aren't as flexible when it comes to everyday essentials.
Kimberly-Clark owns a collection of such staple brands, including Kleenex, Huggies, Scott and Kotex. These franchises helped the stock navigate the last recession without missing a beat. Sales dropped by less than 2% in fiscal 2009, in fact, and operating profit touched a five-year high as the company managed to offset slipping sales volumes by boosting prices. Kimberly-Clark's dividend stayed well covered by earnings throughout that tough sales period, with the payout ratio never rising above 60%.
The company is facing another weak selling environment today as the industry bounces along at near-zero growth. As a result, CEO Thomas Falk and his team see organic sales coming in roughly flat in 2017, compared to a 2% increase last year and a 5% spike in 2015. That sluggish outlook likely means muted short-term profit growth for shareholders ahead. But Kimberly-Clark has navigated far worse periods in the past, all while maintaining steady dividend growth, solid cash flow, and healthy profitability.
The steady energy play
Travis Hoium (NextEra Energy Partners): The sun and wind patterns don't care whether we are in a bull or bear market -- they're going to provide energy for wind and solar power plants either way. And when those power plants produce electricity, they generate revenue for NextEra Energy Partners, a yieldco that has contracts to sell renewable energy to utilities as long as 25 years into the future. It's about as stable as a business gets in 2017.
On top of the stable operating environment, NextEra Energy Partners is riding an explosion of renewable energy installations in the U.S. and around the world. It's one of the lowest-cost financiers and that's allowed it to grow its asset base and dividend since its IPO in 2014. And management has said it will grow its dividend, currently yielding 3.7%, by 12% to 15% through at least 2022.
In a down market, NextEra Energy Partners is a great dividend stock, backed by long-term contracted cash flows. In a bull market, the yieldco can use new debt and equity to buy renewable energy projects that will increase cash available for distribution (CAFD) and dividends per share, growing the dividend long term. In both types of markets, the stock is built for success.
There aren't a lot of companies whose operations aren't affected by the economy or the market's whims, but NextEra Energy Partners has contracted cash flows that investors can count on. That's why it's a stock built for any market.
A dividend stock for generations
Jeremy Bowman (PepsiCo): Looking for a global brand family with products that move in good times and bad with a long history of paying dividends? Look no further than PepsiCo, Inc., the parent of popular brands like Frito-Lay, Quaker, Gatorade, Tropicana, and, of course, Pepsi.
PepsiCo is a Dividend Aristocrat with a 44-year history of raising its quarterly payouts. Today, it offers a solid dividend yield at 2.8%. With its portfolio of beverages and snack foods, PepsiCo is the kind of defensive stock that will weather bear markets successfully.
The company is also adapting to changing consumer tastes, and its position in food and beverage makes it a better bet than rival Coca-Cola, which only sells beverages. Pepsi has introduced lower-calorie beverage offerings and investing in other categories as it broadens its portfolio. Less than a quarter of its sales comes from soda today.
Organic revenue growth has slowed to low-single digits, but core earnings per share is still expected to grow 8% this year thanks to cost-cutting, share buybacks, and an improving sales mix.
Dividend growth has also been steady with annual increases of 7% since 2013, and should continue to rise with earnings growth. The stock also sports a reasonable payout ratio of 63% based on this year's projected earnings so the company has room to raise its dividend even if earnings growth slows.
With a broad portfolio of well-known global brands, steady profit growth, and a commitment to returning capital to shareholders, Pepsi is a smart bet for a dividend payer in any market.
Demitrios Kalogeropoulos has no position in any of the stocks mentioned. Jeremy Bowman has no position in any of the stocks mentioned. Travis Hoium owns shares of NextEra Energy Partners. The Motley Fool recommends PepsiCo. The Motley Fool has a disclosure policy.