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3 Dividend Stocks That Will Hold Up No Matter the Market Conditions

By Josh Kohn-Lindquist – Oct 13, 2021 at 11:00AM

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These three dividend growth stocks are proven safe havens for investors.

Fluctuations in the market can be hard to stomach, but volatility is ultimately the price we pay for higher returns. However, dividend growth stocks can often offer investors greater security from dramatic movements during market corrections or even economic recessions.

Furthermore, some of these dividend growth stocks provide added stability in the form of goods or services that are seldom cut back by customers -- even in uncertain times. Today we will look at three of these S&P 500 dividend growth stocks that should hold up regardless of what market conditions may occur.

Worried trader with hands together in front of his face, studying various investments on two computer monitors.

Image source: Getty Images.

Waste Management

Operating in an industry that will disappear only if humanity ceases to exist, aptly-named Waste Management (WM 1.05%) offers a reasonable 1.5% dividend that has increased for 18 consecutive years. Reporting earnings for its second quarter in July, the company posted cash from operations of over $1 billion for the quarter and gave guidance of $2.5 billion in free cash flow for the full year 2021.

For investors, these cash flow figures demonstrate just how well-funded the company's dividend payments are as it spent just under $1 billion in dividends alone over the trailing 12 months. But perhaps what makes Waste Management most interesting to shareholders is that in addition to its strong financial stability, the stock has handily outperformed the S&P 500 over both the past two and five years, rising 140% and 350% over each time frame, respectively.

Looking to continue building on this growth, the company acquired Advanced Disposal in late 2020 and now expects 15% revenue growth for fiscal year 2021 as it fully integrates the new company. Looking ahead, Waste Management may be a quiet reopening play with daily activities and events beginning to resume again after the pandemic had weighed on the company's overall profitability.

McCormick

With their simple yet powerful value proposition, McCormick's (MKC 0.72%) various spices and flavorings can up the taste of any meal. In short, McCormick's products are a cheap way to maintain normalcy in life, regardless of what may happen to a person's finances or the economy as a whole. Similarly, owning McCormick stock is a great way to add stability to a portfolio since it offers a nice 1.7% dividend with 35 consecutive years of increases.

What's more, after posting an 8% sales increase in its most recent quarter, the company has been showing that it is growth-focused and not just an income stock for retirees. Led by the company's flavor solutions segment, McCormick is also a bit of a reopening play, because this segment supplies restaurants and other foodservice businesses that slowed during the pandemic.

The company bolstered its lineup of brands in its consumer segment, acquiring Cholula hot sauce in late 2020, but its stock price has slowly deteriorated over the past six months due to inflation pressure and tough consumer comparables. Still, for the full-year 2021, management is expecting 9% to 10% sales growth, which is a thing of beauty for a company with McCormick's stable operations.

Target

With a remarkable 50-year streak of increasing its dividend, Target (TGT -1.85%) is perhaps the ultimate dividend-growth success story. Despite facing the obvious challenges stemming from the pandemic as primarily a brick-and-mortar company, Target not only survived but reinvented itself as a leader in omnichannel retail. The chain grew comparable digital sales 10% year over year in the second quarter -- and that follows a 195% increase a year ago. Total revenue for the company in the trailing 12 months has topped $100 billion.

On top of that, the company's drive-up and Shipt options appear to be a great opportunity -- growing by over 80% and 30%, respectively, during the second quarter despite facing massive comparables as well. CFO Michael Fiddelke spoke to the potential of these services becoming the new normal:

Same-day services grew 55% in the quarter, while sales on orders shipped to home actually declined from last year's elevated levels. This provides vivid evidence of the stickiness of our same-day services. Once guests try them, they love them.

As shoppers continue returning to physical stores, it will be fascinating to see if the company maintains higher profitability since its earnings per share of $12.53 over the trailing 12 months is already double what it was two years ago. Its dividend yield of 1.6% certainly has room for growth given that the payout ratio is only 21% -- and that should be welcome news for investors.

Josh Kohn-Lindquist has no position in any of the stocks mentioned. The Motley Fool recommends McCormick and Waste Management. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Waste Management Stock Quote
Waste Management
WM
$168.83 (1.05%) $1.76
Target Stock Quote
Target
TGT
$163.99 (-1.85%) $-3.08
McCormick & Stock Quote
McCormick &
MKC
$85.79 (0.72%) $0.61

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

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