For investors with long time horizons, a market crash can lead to a big jump in overall investment returns. If you can keep investing regularly through a downturn -- or even add to a portfolio with investable cash that's been on the sidelines -- the eventual market rebound can act like a coiled spring for returns.
No one can time the next market crash, but investors should be ready with a plan. Investing in great companies when the market takes their share prices down can help supercharge investors' nest eggs. Below are three companies that have handily beat the S&P 500 index over the past 10 years and have great prospects. Buying them during bear markets can accelerate portfolio returns over time.
Image source: Getty Images.
Home Depot: An anchor for your portfolio
There are multiple reasons why home-improvement retailer Home Depot (HD +0.45%) should have a place in your portfolio. Not only has the company had a wildly successful business in the past, but it has also pivoted proactively to continue that into the future. Importantly, management has also funneled much of its copious cash from operations back to shareholders.
The main reason for owning the stock, of course, is the underlying business. The company astutely anticipated a shift in how consumers would shop when it announced its One Home Depot program in 2017. The $11 billion, multiyear plan is an effort to blend customers' physical and digital shopping experiences -- and its success only accelerated during the pandemic when Home Depot remained open as an essential business.
The company is not just focusing on individual consumers. In late 2020, it paid $8 billion for HD Supply, a provider of maintenance, repair, and operations products. This acquisition should help grow its professional contractor base.
Home Depot shareholders have enjoyed its success in several ways. For one thing, the company has continued to return its cash flow to them through share repurchases. As can be seen below, that's not anything new, but it has accelerated along with the business results, driving the share count lower.
HD cash from operations (annual) data by YCharts.
And that's not all. Since 2009, Home Depot has raised its quarterly dividend every year. Its current annual payout of $6.60 per share is more than 500% higher than it was back then. Given Home Depot's successful growth strategy and shareholder-friendly management, any market downturn that brings a dip in its shares should be considered a buying opportunity.
Garmin: A surprising market beater
GPS devicemaker Garmin (GRMN +1.08%) is another company with products that resonate with consumers, resulting in significant free cash flow. Growing revenue and a strong gross margin (nearing 60%) have helped the company build a balance sheet with $3.2 billion in cash and marketable securities and no debt as of the latest quarter.
Garmin uses that cash-rich balance sheet to reinvest in the business with research and development. The company sees all five of its segments growing in 2021. After updating guidance in the second-quarter report, management now believes sales will grow 16.9% compared to 2020. Boating and camping gained popularity during the pandemic, and the company doesn't see that trend changing anytime soon.
The company also pays shareholders a solid dividend. Garmin's current annual payout of $2.68 per share provides a yield of 1.6% at the recent share price. That might not seem like a high dividend yield, but that's because the share price has jumped almost 160% in the past three years even while the dividend has been steadily increasing.
Past growth and future prospects have led the stock to trade at a lofty price-to-earnings ratio (P/E) much of the time. At its current level of about 27, its P/E is near highs last seen in 2015. A market crash would allow investors to buy shares at a better valuation in a company that is riding trends that look to have staying power.
Image source: Getty Images.
Brookfield Infrastructure: Expert capital allocators
Another stock that routinely trades above market multiples is diversified infrastructure operator Brookfield Infrastructure (BIP +1.44%) (BIPC +0.00%). This company -- note that they have both a limited partnership and corporate entity -- invests globally in such assets as railroads, utilities, cell towers, toll roads, and pipelines. Its strategy is to grow their value and then recycle the capital into new assets with higher growth potential.
The company's success can be seen in how much it has grown funds from operations (FFO) over the years. FFO is a metric often used by real estate investment trusts and other asset-heavy businesses as a measure of operating performance. As FFO increases, so do distributions to shareholders. Over the past three years, FFO has grown 34% with utilities representing the largest segment.
BIP funds from operations (FFO) (annual) data by YCharts.
One area that has shown particular promise is its data segment. This includes telecom businesses in France and India consisting of tower infrastructure and fiber networks. While this segment only made up 10% of total funds from operations in the latest quarter, its FFO contribution has more than tripled in the past three years.
Most recently, Brookfield paid $2 billion to acquire Canadian midstream pipeline operator Inter Pipeline (IPL). Previously the largest investor in IPL, Brookfield believes it had not realized its true valuation as a public company and that privatization would close that gap.
Between allocation of recycled capital investments and organic growth, Brookfield has shown that it has an effective investment team. And that team has shared its success with investors, paying a dividend that recently yielded over 3.5%. When investors get a chance to buy shares on market downturns, it should be considered an opportunity.
