There's no denying that the past month has been testing the resolve of investors. As of Monday's close (March 23), the benchmark S&P 500 (^GSPC -0.88%) had fallen 34% in a span of 23 trading sessions. In the process, it set a record for the quickest descent into bear market territory, handily surpassing what previously seemed like an unimaginably steep decline during the Great Depression.
But despite this negativity, the coronavirus disease 2019 (COVID-19) crash we've experienced might prove to be a once-in-a-decade or once-in-a-generation opportunity to buy into high-quality, brand-name businesses at a discount.
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As a refresher, all 37 previous corrections in the broad-based S&P 500 since the beginning of 1950 have given way to bull-market rallies. These rallies have a perfect track record of eventually erasing all downside moves in the S&P 500. Or to put this into a different context, all it really takes to compound your wealth in the stock market is time and resolve.
It also doesn't hurt to purchase dividend stocks, which have a track record for handily outperforming publicly traded companies that don't pay a dividend. According to J.P. Morgan Asset Management, publicly traded companies that initiated and grew their dividend between 1972 and 2012 averaged an annual return of 9.5%, which compares to just 1.6% annually for non-dividend-paying stocks over this same period. This really shouldn't come as a shock given that dividend-paying stocks often are profitable, are time tested, and have identifiable competitive advantages.
With this being said, opportunistic investors looking to take advantage of this massive swoon in equities should consider buying shares of the following three brand-name businesses and, most importantly, never selling.
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Johnson & Johnson
Healthcare conglomerate Johnson & Johnson (JNJ 1.49%) might be the most well-rounded investment you can make right now. This is a company that's increased its payout for 57 consecutive years (likely 58 by this time next month) and has, even more impressively, grown its adjusted operating earnings for 36 straight years. Johnson & Johnson is also one of just two publicly traded companies to bear the highly coveted AAA credit rating from Standard & Poor's.
What makes J&J special is twofold. First, healthcare isn't a cyclical business. Since we don't get to control when we get sick or what ailment(s) we develop, it leads to consistent demand and predictable cash flow in any economic environment. This makes Johnson & Johnson a particularly attractive buy during any stock market correction.
Secondly, J&J has three operating segments, each of which brings something important to the table. Consumer healthcare is slow growing, but it provides predictable cash flow and healthy pricing power. Meanwhile, medical devices are J&J's long-term growth driver that'll help it care for an aging global population. Lastly, pharmaceuticals offer superior margins and growth potential, but branded therapies have a finite period of exclusivity.
Suffice it to say you could do a lot worse than Johnson & Johnson's 3.1% yield.
Image source: Coca-Cola.
Coca-Cola
Another well-known stock that should be scooped up aggressively by income seekers is beverage giant Coca-Cola (KO 2.14%). Shares of Coca-Cola have fallen by around a third since mid-February, which has subsequently pushed Coke's dividend north of 4%. Mind you, this is a company that's increased its payout for 58 consecutive years.
Coca-Cola's secret sauce is its geographic diversity and consumer engagement. In terms of the former, Coca-Cola is currently operating in all but one country worldwide (North Korea), providing it plenty of predictable cash flow in developed markets, as well as ample opportunity to grow sales in emerging markets. It's also worth noting that Coke has a whopping 21 beverage brands that are generating at least $1 billion in annual sales.
In terms of engagement, Coca-Cola has a number of ways it's reaching users. Its packaging and holiday-themed imaging have always helped it stand out and connect with consumers of all ages. Lately, we've even seen Coca-Cola turn to social media influencers to broaden the reach of its message.
The point is that no matter what is thrown Coke's way, it just keeps innovating and reaching new customers. That makes it an exceptionally safe dividend stock to never sell.
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AT&T
Sometimes boring business models are the absolute best to add to your portfolio during times of extreme fear. That's why telecom giant AT&T (T 1.10%) and its greater-than-7% yield are worth buying and never selling. AT&T has increased its payout for 36 consecutive years, placing it among the S&P 500's Dividend Aristocrats, along with J&J and Coca-Cola.
One thing that makes AT&T's business model rock solid in virtually any economic environment is the company's wireless division. To begin with, smartphones have become something of a necessary good, meaning consumers will look elsewhere to cut back on other expenses during economic contractions. Further, AT&T's wireless customers are typically on subscription plans. Subscribers are far less likely to cancel what's viewed as a necessary service during periods of economic weakness.
To build on AT&T's key margin segment, the company is also expected to benefit from the rollout of 5G networks. This is the first major upgrade to wireless infrastructure in about a decade, and I'm expecting it'll lead to a long tech upgrade cycle and even higher data usage. That's great for AT&T, because data is king when it comes to margins.
Investors also shouldn't overlook AT&T's streaming assets. While it's expected to see minor erosion of traditional cable assets (e.g., DirecTV) as more streaming services pop up, AT&T should benefit from streaming HBO Max and could even wind up courting consumers from its competitors thanks to its broadened content portfolio, courtesy of its Time Warner acquisition in 2018.
AT&T might be boring, but you'll never go to sleep worrying about the financial state of the company or its delectable dividend.
