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Worried About a Second 2020 Market Crash? 3 Dividend Stocks to Buy Now

By Jason Hall - May 18, 2020 at 10:02AM

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The pandemic could keep the economy from fully recovering before next year. If so, stocks might crash, but this trio looks good no matter what.

After falling hard and fast on the heels of the global COVID-19 lockdown, stocks have bounced back. The SPDR S&P 500 ETF Trust (SPY -0.12%) is only down about 11% this year, and off about 16% from the pre-crash high in late February. A lot of the market's recovery is due to the government's multitrillion-dollar stimulus efforts, along with optimism that things will start to open up and the economic recovery will be swift. 

But with more than 30 million Americans now out of work, it's looking less and less likely that the economy will recover quickly. COVID-19 deaths have passed 85,000 in the U.S., and even where businesses are opening up, people don't seem so quick to go back to the usual way of doing things without more-effective treatments or a vaccine. 

Man looking at a red line crashing through the floor.

Image source: Getty Images.

So there's good reason to think that there very well could be another market crash before it's all said and done. But even with that risk, I think there are still some good investments to be found. Three in particular I like right now also happen to pay dividends: electronic payments giant Mastercard (MA -1.50%), senior housing specialist CareTrust REIT (CTRE 3.75%), and infrastructure asset giant Brookfield Infrastructure (BIP -0.63%) (BIPC -0.76%)

Keep reading to learn why these are excellent stocks to buy now, even with another market crash possible and the economy at risk of a deeper, longer recession than we first thought. 

Mastercard: The payments trend is bigger than this moment

Mastercard's stock is down about 7% since the beginning of 2020 and about 20% from the pre-crash peak. And if we do see another market crash this year, I expect its shares will also fall. But even with that risk, today's price looks too good to pass up. 

That's because Mastercard's business is becoming more and more important to global purchasing with each passing day. It's something I think the COVID-19 pandemic is accelerating as more people make purchases online, and realize the benefits of touchless payments and avoiding carrying cash that can spread diseases. It may not be obvious in the West, where cards are common, but in much of the world, cash is still king when it comes to conducting transactions. This gives Mastercard a massive runway for growth, even with its enormous size. 

The fact is, its scale is one of the things that makes Mastercard worth buying. It benefits enormously from the network effect of its size. The bigger it gets, the more its various stakeholders benefit. That includes consumers who carry a Mastercard (or a virtual one), the banks, and merchants who want to attract those consumers. 

MA Dividend Chart

MA Dividend data by YCharts.

It's not just the growth of electronic payments, either. The secular growth of the global middle class (about 1 billion new members will be added over the next decade) will result in a big increase in the raw number of transactions, Mastercard's bread-and-butter source of profits. 

Its dividend yield may not look like much, at about 0.52% at recent prices, but the company has increased it every year for the past eight years, and it's up 4,340% since the dividend was started. It also takes less than 18% of Mastercard's profits and cash flows to cover. With many years of growth ahead, even a modest yield like that can really add up with those sorts of increases. 

CareTrust: An unfavorable view of an important business

If there's any one segment of the population that's most at risk from COVID-19, it's seniors. As a result, many of the dead have been residents of senior housing properties and nursing homes, where the highly contagious coronavirus can spread quickly. That's the big reason shares of senior housing REITs (real estate investment trusts) like CareTrust are still down sharply. Its shares are off 21% this year and 30% below the pre-crash peak. 

And there's reason for some concern. Nursing home operators face increased regulation over the long term that could raise expenses and cut profits. And in the near term, revenue could fall as families pull relatives out of these facilities. Moreover, some places have stopped these facilities from taking in new residents for now. 

But just as with Mastercard and the long-term trends of increased electronic payments and a growing middle class, the next decade is going to see a big increase in the senior population in the U.S and much of Europe. By 2030, there will be more than 80 million Americans over 65, a doubling from 2010; the 80-plus population will also have doubled. 

So the secular trend is very much in CareTrust's favor. And with one of the strongest balance sheets in the industry and an experienced management team (CareTrust was spun off of Ensign Group, which operates nursing and rehabilitative-care services in multiple states), I think it's one of the best prepared to ride out the near-term concerns and then benefit from the next decade of growth. 

Here's how CareTrust's balance sheet compares with that of its biggest and strongest peers in the senior-housing and skilled-nursing properties segment: 

CTRE Debt to Equity Ratio Chart

CTRE Debt to Equity Ratio data by YCharts. TTM = trailing 12 months.

CareTrust's cash flows are steady and strong enough that it just raised the dividend. With a yield nearing 5.7% at recent prices, and only taking about 74% of cash flows to support, this is an excellent stock to buy now and hold for years to come. 

Brookfield Infrastructure: Keeping the modern world working

Much of the economy is at a standstill. Even as some businesses start to reopen, much of the "normal" ways of doing business may not return before next year or even longer. 

But in the midst of all this turmoil, there are some crucial parts of the modern world that will keep running in the background: things we rely on daily, often without even thinking of them as investment opportunities. This is where Brookfield Infrastructure lives. 

The company owns infrastructure assets like water, electricity, and natural-gas distribution and transmission systems; telecommunications assets like fiber and wireless towers, and even transportation assets for both people and goods. While demand for some of these things is lower right now, they're still critically important, and few businesses in this space are as well run as Brookfield Infrastructure. 

Yet the market has this best-in-class business trading at a 24% discount to its 2020 peak price and 27% off the all-time high, set late last year. Moreover, the company was able to maintain its dividend this last quarter, even though it may look like it was cut. Brookfield formed a new entity recently, Brookfield Infrastructure Corporation (BIPC -0.76%), and awarded Brookfield Infrastructure Partners investors with one share of this new public entity for every nine shares of BIP they owned. When you factor in these new shares and the dividends paid, the new "lower" dividend is actually the same as last quarter's total economic value for shareholders of record. 

BIP Dividend Chart

BIP Quarterly Dividend data by YCharts.

Adjusting for that little accounting blip, Brookfield Infrastructure has never cut the payout, and has a stellar record of raising the dividend over the past decade. With a yield above 5.3% at recent prices, this is a business worth owning for decades. Don't let fears of another market crash make you pass up an incredible value. 

Jason Hall owns shares of Brookfield Infrastructure, Brookfield Infrastructure Partners, CareTrust REIT, Mastercard, and Welltower. The Motley Fool owns shares of and recommends Mastercard. The Motley Fool recommends Brookfield Infrastructure and Brookfield Infrastructure Partners. The Motley Fool has a disclosure policy.


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Stocks Mentioned

Mastercard Incorporated Stock Quote
Mastercard Incorporated
$352.16 (-1.50%) $-5.35
Brookfield Infrastructure Partners L.P. Stock Quote
Brookfield Infrastructure Partners L.P.
$40.76 (-0.63%) $0.26
CareTrust REIT, Inc. Stock Quote
CareTrust REIT, Inc.
$21.87 (3.75%) $0.79
Brookfield Infrastructure Corporation Stock Quote
Brookfield Infrastructure Corporation
$46.82 (-0.76%) $0.36
SPDR S&P 500 ETF Trust Stock Quote
SPDR S&P 500 ETF Trust
$412.99 (-0.12%) $0.48

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

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