Please ensure Javascript is enabled for purposes of website accessibility

Before the Market Crash Comes, Buy and Hold These 3 Dividend Stocks

By Daniel Foelber, Scott Levine, and Lee Samaha - Jun 27, 2021 at 6:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These value stocks have strong fundamentals that make them worth buying even into a market downturn.

Row upon row of green continues to paint the pages of stock sites and apps. The three major indexes -- the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite -- are at or near all-time highs. There are plenty of reasons the good times could keep on rolling. But eventually, a stock market crash will come.

With that in mind, we asked some of our Motley Fool contributors which dividend stocks are worth buying even if the market crashes. They chose Brookfield Renewable (BEPC -0.55%), Chevron (CVX 0.14%), and Union Pacific (UNP 0.29%)

A glass globe surrounded by fanned U.S. $1 bills.

Image source: Getty Images.

Your one-stop clean-energy dividend source

Scott Levine (Brookfield Renewable): From luxury vehicles to heavy-duty trucks, each day last summer felt like another electric vehicle (EV) company was hitching a ride with a special purpose acquisition company (SPAC) to hit the public markets. With so much attention on EVs, other areas of the renewable energy sector might have fallen in popularity.

Therein lies an opportunity for savvy investors -- especially those wary of a steep market downturn. Brookfield Renewable provides a simple approach to gaining exposure to the clean-energy industry, an approach that also offers investors the chance to get paid handsomely for going green.

A global leader in renewable energy, Brookfield Renewable has nearly $60 billion in assets under management. In addition to 8 gigawatts (GW) of hydropower projects, the company operates a variety of other renewable energy projects including solar, wind, energy storage, and distributed generation, representing a total portfolio of 21 GW.

Because Brookfield Renewable enters into long-term power purchase agreements (PPAs) with these projects, the company has good insight into future cash flows, affording it the ability to plan accordingly should a market crash occur. And the cash flows should continue to grow in the days ahead; Brookfield Renewable has 27 GW of projects in its development pipeline.

With the clarity into its future finances that the PPAs afford, investors can rest assured that management is well suited to adeptly allocate capital to return cash to shareholders while executing plans to ensure the company's growth. Currently, Brookfield Renewable provides investors with an enticing forward dividend yield north of 3%, and management aims to increase its payout. In a recent investor presentation, for example, management reaffirmed its long-stated target of increasing its annual distribution 5% to 9%. And with the company's investment-grade balance sheet, which S&P Global Ratings assigns as BBB+, investors can rest easy knowing that the company is in sound financial health, a good thing when the market crashes.

A 5% dividend yield that's worth the risk

Daniel Foelber (Chevron): Chevron is one of the rare energy Dividend Aristocrats. Despite booms and busts in the oil and gas market, it has been able to boost its annual payout for over 30 consecutive years. This consistency is due in part to the strength of its balance sheet, which continues to be arguably the best of the oil majors.

Like its peers, Chevron had a rough 2020, but things are looking better so far this year. The price of West Texas Intermediate crude passed $70 per barrel for the first time in over three years, which will help Chevron's margins.

For better or worse, Chevron stock tends to march to the beat of oil and gas prices rather than if the market is rising or falling. The oil giant has rebounded nicely from its COVID-19 low, and is up over 25% year to date, handily outperforming the broader indexes. 

CVX Chart

CVX data by YCharts.

The expected uptick in earnings due to higher commodity prices is likely baked into its stock price. Chevron did an impressive job slashing its spending and reducing its production costs, which has allowed it to return positive free cash flow at lower oil prices. Given this operational advantage, a track record for strong financials, and consistent dividend raises, Chevron is an oil stock worth buying before a market crash.

Union Pacific

Lee Samaha (Union Pacific): It's impossible to predict when a market crash will happen, but when it does, the likelihood is that most stocks will decline. However, what you can do is buy stocks that you are willing to hold through a market decline because they are likely to emerge from a slowdown in good shape. It also helps if they pay a dividend while you wait for better days to come.

In this context, a railroad, specifically Union Pacific, is a great option. Railroads are the veins and arteries of the U.S. industrial economy, so if you believe in long-term economic growth, then you think railroads will see revenue growth. Moreover, they own their infrastructure, meaning they have strong market positions. In addition, they operate as effective oligopolies. For example, Union Pacific and BNSF dominate the West Coast, and Norfolk Southern and CSX do the same in the East.

Union Pacific currently pays a well-covered dividend of nearly 2%, and management is implementing an ongoing set of initiatives designed to improve profitability over the long term. So, all told, even when there's a market crash -- likely caused by an economic slowdown -- you can be confident that Union Pacific will emerge from it in good shape when the recovery comes.

Daniel Foelber owns shares of Brookfield Renewable Corporation Inc. Lee Samaha has no position in any of the stocks mentioned. Scott Levine owns shares of Brookfield Renewable Corporation Inc. The Motley Fool recommends Union Pacific. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Brookfield Renewable Corporation Inc. Stock Quote
Brookfield Renewable Corporation Inc.
$41.77 (-0.55%) $0.23
Chevron Corporation Stock Quote
Chevron Corporation
$159.85 (0.14%) $0.23
Union Pacific Corporation Stock Quote
Union Pacific Corporation
$239.95 (0.29%) $0.70

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.