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3 Dividend Stocks That Thrive in Both Bull and Bear Markets

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Don't let these rock-solid dividend payers pass you by.

When most people think of investing in stocks, all too often, the risk of outsized volatility comes to mind. And for better or worse, that volatility -- and any given stock's near-term direction -- can be amplified depending on whether we're in a bull or bear market.

But some businesses are much less susceptible to the whims of broader market conditions. So, we asked three Motley Fool investors to each pick a stock that thrives in both bull and bear markets. Read on to learn why they like Anheuser-Busch InBev (BUD 2.10%), McDonald's (MCD 2.46%), and TJX Companies (TJX 0.34%).

Grey bull and bear figurines with a black and grey background.

Image source: Getty Images.

Raise a glass to this enduring industry

Steve Symington (Anheuser-Busch InBev): If there's one industry that can survive and thrive through virtually any market conditions, it's the global brewing industry. And I can't think of any company that's better positioned there than Anheuser-Busch InBev.

With the help of its $100 billion plus megamerger with SABMiller completed in late 2016, which itself provides massive cost synergies, the worldwide brewing juggernaut now sells its massive portfolio of roughly 400 beer brands in more than 150 countries. Those beers include seven of the world's most popular brands, headlined by its three leading "Global Brands" in Budweiser, Corona, and Stella Artois.

Of course, global exposure has its pros and cons. Starting in late 2016, for example, AB InBev's business in Brazil suffered weakness in the face of economic strife and what management described as a "challenging consumer environment." And in late 2017, adverse weather held back shipments in the crowded United States market. 

But even as AB InBev works to turn around its struggling geographies -- shares rallied in March as Brazil began to rebound, for example -- those challenges were always balanced by the relative outperformance of AB InBev's brands in other regions. 

If that's not enough, AB InBev offers a healthy dividend with an annual yield of 4.45% as of this writing, ensuring patient investors continue to get paid regardless of market conditions.

A dividend stock that's proven its mettle

Jeremy Bowman (McDonald's): If you're looking for a dividend stock that will deliver in any market, it's worth checking the list of S&P Dividend Aristocrats, the 50 or so stocks that have raised their dividend payouts each year for 25 years or more.

You'll find McDonald's high up on that list as the fast-food giant has increased its dividend payment each year since 1976, when it first started sharing profits with investors. As a restaurant operator and franchisor that does business all around the world, McDonald's has the kind of diversification that dividend investors look for to thrive in any kind of market.

The stock has surged over the last three years, gaining 68%, while riding the bull market and benefiting from new CEO Steve Easterbrook's initiatives like all-day breakfast, refranchising locations, improving food quality, and remodeling restaurants with its "Experience of the Future" plan. The restaurant sector in general tends to do well in expanding economies as consumer spending increases, and even fast-food chains like Mickey D's benefit from an increase in spending on "affordable luxuries."

However, McDonald's also serves investors nicely as a defensive stock. As a franchisor, its model isn't so dependent on restaurant-level profits as it makes most of its money on rent and royalties so it will remain profitable even if its franchisees see sales decline. With Dollar Menu items and value meals available at around $5, the company also has plenty of options for consumers looking to tighten their purse strings.

McDonald's last dividend increase raised the payout by a solid 7.4% to $1.01. With profits quickly increasing due to Easterbrook's modernization plan, I'd expect another solid hike this fall.

Off-price retailing is a long-term winner

Demitrios Kalogeropoulos (TJX Companies): Very few retailers can survive, much less thrive, through the frequent downturns that plague the industry. But TJX, the company behind the TJ Maxx, Marshalls, and HomeGoods shops, has proven through several recessions that it has what it takes to succeed in a wide range of market conditions.

The off-price retailer's latest fiscal year included modest sales and earnings growth, with revenue at existing locations rising 2% as profitability held steady at 30% of sales. Unlike many of its peers, customer traffic was positive in 2017, and that success is a testament to TJX's army of merchandise buyers who are always ready to snap up high-quality inventory at distressed prices.

The retailer is expecting to grow sales at a steady 2% rate in 2018. Its stellar cash position, meanwhile, should give management room to double their stock buyback spending to as much as $3 billion. Yet the best news for income investors is that TJX boosted its dividend by a hefty 25% in February. That marks the 22nd consecutive year of dividend raises, meaning this retailer needs just three more hikes before it qualifies for membership in the exclusive Dividend Aristocrat club.

The bottom line

We can't guarantee that these three stocks will be able to outperform the broader market and continue to thrive in all markets. But between AB InBev's unrivaled global brewing industry leadership, McDonald's durable brand and franchise business, and TJX's history of thriving through recessions, as well as the rock-solid dividends paid by each of these businesses to investors, we like their chances of doing just that.

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Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$252.96 (2.46%) $6.08
Anheuser-Busch InBev SA/NV Stock Quote
Anheuser-Busch InBev SA/NV
$55.08 (2.10%) $1.13
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
$56.04 (0.34%) $0.19

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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