No one can predict with certainty when, or if, a stock market crash is coming. But with the S&P 500 and Nasdaq Composite both having risen about 50% in nearly a straight line over the past 12 months, markets in general might be at risk of a decline. With that in mind, and a long-term plan in place, investors might want to position themselves now to absorb a market pullback.
One way to prepare is by building up cash and putting together a shopping list for the right entry point. That's a smart approach, but a long-term strategy by definition means staying invested. And with the exact timing of the next extended downturn being unknown, these stocks are good places to invest now. They each include desirable traits that help you stay invested through a market crash.
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Keep the returns coming
In addition to still giving returns on your capital when the market is down, owning dividend paying stocks can help an investor psychologically when a portfolio seems to endlessly show red. Enbridge (ENB 2.83%) is a Canadian midstream energy company that operates oil and natural gas pipelines, as well as natural gas distribution infrastructure and a growing renewable energy portfolio.
Enbridge is able to offer a reliable dividend thanks to utility-like cash flows from its contracted and regulated gas transmission, gas distribution, and oil pipeline businesses. The company expects it can increase distributable cash flow per share by 5% to 7% per year annually through 2023.
That should let investors feel good that the current dividend, which yields about 6.6%, will remain intact through an economic slump, and even continue to grow.
ENB Dividend data by YCharts
And the company also sees plenty of growth opportunities beyond 2023 in all four of its business platforms. Besides liquid pipelines and gas transmission and distribution, Enbridge sees opportunities to grow beyond its current portfolio of 23 onshore and offshore wind farms. The Biden administration has stated a goal of creating 30 gigawatts (GW) of U.S. offshore wind capacity by 2030.
Enbridge already has two large offshore wind projects in France under construction, which the company said in its recent first-quarter 2021 earnings call should be operational in 2022 and 2023, respectively. Investing in Enbridge now provides an income stream along with opportunity for capital growth through a market crash and beyond.
A balanced business
The stock of McCormick (MKC 1.68%), the well-known maker of spices, sauces, and flavorings, has outpaced the total return, including dividends, of the S&P 500 over the past three years by about 15 percentage points, though its shares have trailed over the last year. But McCormick has a balanced business that helped it continue to grow revenue through the pandemic.
McCormick's business is a balance of consumer brands and commercial food service solutions. For its full fiscal year 2020 ended Nov. 30, 2020, overall sales grew 5%. The growing home cooking trend during the pandemic led to 10% growth in its consumer segment, helping to offset a single-digit decline in the commercially oriented flavor solutions segment, which suffered with restaurant closures and restrictions.
Now that a recovery is beginning to take hold in the commercial food markets, McCormick is seeing strength in both segments. For its fiscal 2021 first quarter, overall sales grew 22%, with positive contributions from both sides of the business. The strengthening business prompted the company to increase its sales outlook for full-year 2021 to an expected growth rate of 8% to 10%, and it also raised its operating profit and earnings-per-share growth outlook.
In addition to paying a dividend for 97 consecutive years, McCormick has also increased its dividend payout every year for the last 35 years, putting it in the elite group of Dividend Aristocrats.
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A recent discount
Another name that has the potential to benefit from current, and expected, growth in the renewable energy sector is Brookfield Renewable Partners (BEP 0.92%). In a new report released this month, the International Energy Agency (IEA) said renewables were the only energy source where demand increased in 2020. And renewable capacity additions increased 45% despite the pandemic.
Looking ahead, the agency says renewables will account for 90% of new power capacity expansion globally over the next two years. Brookfield's portfolio contains over 5,300 power-generating facilities consisting of hydroelectric, solar, and wind power. Like Enbridge, Brookfield plans to participate in new growth of offshore wind, too. In its first-quarter release, it offered some background on the offshore segment, stating: "For the past several years, we monitored the offshore wind sector, while not investing. But as the technology has grown and matured, we have become more comfortable."
Investors have an opportunity to own Brookfield Renewable at a lower price this year. As the overall stock market has rotated away from alternative energy names, Brookfield shares have dropped more than 20% over the past three months. That move has also brought the dividend yield to almost 3.5% at the current share price. The pandemic-induced market crash in 2020 didn't last long. But energy demand crashed from the other aspects of the pandemic. The International Energy Agency data shows that renewables held up, and should continue to grow. That should make investors in Brookfield feel good about holding through the next market crash, too.
