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3 Can't-Miss Dividend Stocks to Buy if There's a Stock Market Crash

By Sean Williams – Oct 28, 2021 at 6:06AM

Key Points

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These income stocks, with yields ranging from 1.8% to 7.4%, are the perfect place for investors to put their money to work during a downturn.

If you're like most investors, the mere mention of the words "stock market crash" is unnerving. That's because the downside we witness during steep corrections often occurs in a short time frame.

Even though stock market crashes and corrections are unpredictable, history shows they're quite common. For example, the widely followed S&P 500 (^GSPC -0.61%) has undergone 38 declines of at least 10% over the past 71 years. Although the market doesn't adhere to averages, we often witness a notable correction or crash about once every two years.

In other words, stock market crashes and/or corrections are an inevitable part of the investing cycle.

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However, crashes and corrections also offer an opportunity for patient investors to buy top-notch companies at a perceived discount. After all, each and every one of those aforementioned 38 double-digit drops in the S&P 500 since 1950 have eventually been wiped away by a bull-market rally.

Arguably the best way to approach investing during a stock market crash is to buy dividend stocks.

Historically, dividend stocks have run circles around their non-dividend-paying peers. A study from J.P. Morgan Asset Management, a division of JPMorgan Chase, found that companies initiating and growing their payouts between 1972 and 2012 averaged a cool 9.5% annual return. Meanwhile, companies that didn't pay a dividend eked out an average annual gain of only 1.6%.

The data from this report shouldn't surprise anyone. Companies that regularly pay a dividend are almost always profitable on a recurring basis and have shown the ability to navigate their way through the economy's ups and downs.

If a stock market crash or steep correction does rear its head at some point in the not-so-distant future, the following three can't-miss dividend stocks should be on investors' buy list.

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NextEra Energy: 1.8% yield

If there's a sector investors can count on for market-topping dividends, its utilities. Specifically, the name for investors to buy is leading electric utility stock NextEra Energy (NEE 1.12%).

The reason electric utilities are an income investors' dream has to do with the predictability of their cash flow. Electricity and natural gas are basic-need services for businesses and consumers in any economic environment. This predictability of demand allows NextEra (and its peers) to undertake new infrastructure projects without compromising its payout or profitability.

But you'll likely note that NextEra's yield of 1.8% is below most other utility stocks. That has nothing to do with NextEra being cheap with its shareholders. Rather, it's a reflection of NextEra's share price rising by more than 500% over the trailing-10-year period. Since yield is a function of payout relative to share price, a rapidly rising share price has weighed down its yield. This is a trade-off investors have been more than willing to make.

What makes this company so special is its focus on renewable energy projects. No utility in the country is generating more capacity from solar or wind power than NextEra. Further, no utility is likely to surpass NextEra Energy anytime soon, either. It's set aside $50 billion to $55 billion between 2020 and 2022 for new infrastructure projects, virtually all of which will target renewable energy. Although these projects are costly, green energy is helping to lower NextEra's electric generation costs, which in turn has lifted its compound annual growth rate to the high single digits looking back more than a decade.

This is about as safe of an investment as they come during a stock market crash.

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Bristol Myers Squibb: 3.4% yield

Another can't-miss dividend stock to buy into if a crash or steep correction occurs is pharmaceutical giant Bristol Myers Squibb (BMY 0.11%). At 3.4%, Bristol Myers' yield is more than double what you'd receive from buying an S&P 500 tracking index.

The beauty of healthcare stocks is that they're almost always highly defensive. No matter how well or poorly the stock market or U.S. economy are performing, people still get sick and require pharmaceuticals, medical devices, and healthcare services. For a drug company like Bristol Myers, this means a steadiness in demand that few other sectors or industries can offer.

What makes Bristol Myers Squibb such an intriguing company to buy and hold is its perfect blend of organic and inorganic growth potential.

From an internal development perspective, it's reaping the rewards of blockbuster drugs like oral anticoagulant Eliquis, which was developed with Pfizer, and cancer immunotherapy Opdivo. Eliquis is on pace to top $10 billion in annual sales this year, whereas Opdivo brought in $7 billion in sales last year. Opdivo might offer the greater long-term potential given that it's being studied in dozens of clinical trials and offers a strong likelihood of label expansion opportunities in the future.

Bristol Myers Squibb also made quite the splash with the November 2019 acquisition of cancer and immunology drug developer Celgene. Though this deal brought a handful of new blockbuster drugs into the fold, multiple myeloma treatment Revlimid is the real prize. Revlimid has grown sales annually by a double-digit percentage for more than a decade, and brought in over $12 billion in revenue last year. With generic versions of Revlimid not flooding the market until the end of January 2026, Bristol Myers has more than four years to reap the rewards of this high-margin therapeutic.

Valued at just a hair over seven times forward-year earnings, Bristol Myers Squibb has "bargain" written all over it.

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Image source: Getty Images.

Enterprise Products Partners: 7.4% yield

A third and final can't-miss dividend stock to buy if the market corrects or crashes is midstream energy company Enterprise Products Partners (EPD 0.04%). You'll note that its 7.4% payout firmly places the company in the ultra-high-yield category.

Whereas most folks are probably leery of oil stocks after the historic demand drawdown experienced in the wake of the coronavirus pandemic, most midstream companies didn't face these same issues. Midstream operators control transmission via pipelines, operate oil, natural gas, and natural gas liquids storage, and occasionally operate refineries. While drillers were negatively impacted by the rapid decline in the price of crude oil, midstream providers like Enterprise Products Partners were well-insulated from this turbulence by the structure of their transmission and storage contracts.

What's more, Enterprise Products Partners' distribution was never in danger, even when crude oil was stuck below $40 a barrel. Income statements from the company show that the distribution coverage ratio (i.e., the percentage of its operating cash flow disbursed as a dividend) never dipped below 1.6 in 2020. A reading below 1 would have signified an unsustainable payout. This is a company that's lifted its payout for 22 consecutive years, and that streak is likely to continue in 2022.

With the price for crude oil and natural gas recently hitting multiyear highs (how quickly things change in the energy landscape!), the bull case for Enterprise Products Partners is further strengthened. Higher prices may encourage domestic drillers to up their output. Likewise, it encourages Enterprise Products to continue expanding its pipeline and storage infrastructure to meet growing domestic demand.

If you want to crush inflation and set yourself up for long-term success should a crash arise, Enterprise Products Partners is the ultra-high-yield stock to buy.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bristol Myers Squibb. The Motley Fool recommends Enterprise Products Partners and NextEra Energy. The Motley Fool has a disclosure policy.

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