Every investor should have a shopping list in mind for where to put spare cash when markets turn down. Corrections and bear markets can happen very quickly, and many investors are frozen either in fear or surprise when they occur. Having a set plan in place allows you to put money to work at the best prices.
Dividend stocks are particularly appealing to buy at sale prices since there can be an outsized return forever on that capital. These three stocks are positioned to continue to prosper in the future regardless of stock market swings. Each would make a great investment, especially if you can get at least some shares at bargain prices.
Target: The newest Dividend King
2020 will likely be looked at as an inflection point for retailer Target (NYSE:TGT). Both its business and its stock proved the company is a major force. And as if to put an exclamation point on those results, Target just raised its quarterly dividend a hefty 32%, which will make 2021 the 50th consecutive year with an increase in the dividend. Assuming nothing related to the dividend changes, the company will become the latest on the elite list of Dividend Kings at the end of the year.
But investing in Target isn't just about a growing dividend. Target benefited greatly from demand boosted by the pandemic in 2020. Full-year revenue grew by $15 billion compared to 2019. For perspective, that was more than the company's sales increased over the prior 11 years combined. And the company expects that to continue. Target management estimates that for the balance of 2021, comparable-store sales will still increase on top of the 20% growth it experienced in 2020's pandemic-enhanced second half.
With a price-to-earnings (P/E) ratio of around 20, Target shares aren't overly expensive right now. But historically, the stock traded at a P/E in the mid-teens. If the valuation gets back to that level, Target stock would be on sale and worth adding to an existing position.
Garmin: Growing the business, and the cash pile
Shares of outdoor recreation GPS device maker Garmin (NASDAQ:GRMN) have been trading a bit pricier than Target. Its P/E is hovering around 27, which is well above its typical range for the past five years of near 20. But Garmin's already growing business got a boost of its own from COVID-19, as people flocked to the outdoors for recreation amid the pandemic.
Garmin used to be known for its automotive personal navigation devices. But its fitness, outdoor, aviation, and marine segments now make up almost 90% of sales. The shift away from automotive didn't hold back growth. Total revenue has grown about 45% in the past five years. That growth doesn't seem to be slowing down. Boat and recreational vehicle (RV) manufacturers are reporting record backlogs these days, and Garmin devices will grow with those sales.
Garmin's dividend currently only yields about 1.7%. But that's a reflection of the increasing share price. The company has plenty of cash -- and free cash flow -- to continue paying and increasing its dividend. For the fourth quarter of 2020, Garmin paid $117 million in dividends while generating $387 million of free cash flow. The first quarter of 2021 brought $331 million in free cash flow to cover that same dividend payment.
Revenue grew 25% year over year in the first quarter as well. And as of March 27, 2021, Garmin had $3.2 billion in cash and marketable securities with no debt. For those who want a reliable dividend, a growing business, and a safe balance sheet, Garmin would make a fine stock to buy on sale.
NextEra Energy: Utility-like, with a boost
NextEra Energy (NYSE:NEE) offers the benefit of diversity within a single investment. It is the parent of electric utilities Florida Power & Light and Gulf Power, and it also has a growth segment in its renewable energy subsidiary, NextEra Energy Resources. NextEra's dividend is utility-like in reliability, but the 2% yield is lower than what a typical utility offers. The trade-off comes in the form of the growing renewables segment.
In the first quarter of 2021, NextEra grew adjusted earnings per share by 14% year over year, far higher than what investors typically expect from utilities. The company has guided investors for annual earnings growth that should average between 6% and 8% through 2023, after growing 10.5% in 2020. As far as the dividend, NextEra said it expects to continue to increase its annual dividend per share by about 10% through at least 2022.
Right now, however, investors have to pay up for the combination of growing earnings and the increasing dividend. The P/E of 30 times forward earnings is significantly higher than true utility peers like Dominion Energy (NYSE:D) and Consolidated Edison (NYSE:ED). But for investors looking for both income and growth, NextEra Energy is one to keep high on the shopping list when it goes on sale.