One reason investors love dividends is for the steady payout that comes regardless of whether the market is going up or down. That assumes, of course, that the company behind the payment is in a position to distribute some of its capital to shareholders even when the business itself takes a dip. 

But another factor to consider when choosing a dividend stock is how that underlying business holds up during adverse market conditions. It may be for different reasons, but three stocks that check those boxes for reliable dividends and sustainable business models are big box retailer Costco (NASDAQ:COST), steel company Nucor (NYSE:NUE), and spice maker McCormick (NYSE:MKC)

Two concerned investors looking at a laptop considering market conditions.

Image source: Getty Images.

Sharing with shareholders

A market downturn can come for many different reasons, but a recession is the one that could impact underlying business performance the most. The pandemic-caused recession in 2020 was brief, but it was unique in that many businesses continued to suffer for related reasons well past the official resumption of economic growth. But Costco showed its value as an essential business, especially at a time of uncertainty for consumers. 

The company increased its comparable sales during the pandemic. But importantly, it has accelerated that growth in its 2021 fiscal year, which runs through August, as shown below. 

Metric FY 2021 FY2020 FY2019
Adjusted Year-Over-Year Comp Sales Growth* 13.4% 9.2% 6.1%

Data source: Costco financial reports. *Excluding the impacts from changes in gasoline prices and foreign exchange. 

Part of Costco's sales growth is coming from its e-commerce business. That channel grew more than 50% year over year in fiscal 2020, but then it jumped another 43% in fiscal 2021. The market has recognized the ongoing success, and the stock is up 37% year to date. But it should still be a holding investors can be comfortable with, even through a market downturn. Costco pays a dividend with a relatively benign yield of 0.6% at recent prices. But it has paid stockholders a special dividend four times in the past eight years, including a $10-per-share payout in December 2020 funded by existing cash. During the bad times, that is something else shareholders can potentially look forward to coming back during the better times. 

Solid as steel

Investors should realize that Nucor's business is far from immune to economic swings. In the cyclical steel industry, the stock itself is likely to swing in a range during both good and bad times. But over the long run, the stock should hold up and give comfort to shareholders for several reasons.  

Nucor is constantly working to innovate and grow. It has a solid balance sheet and a business model that allows it to become more efficient when conditions dictate through its production-bonus pay system. Employees are rewarded during the good times but also share in helping the company weather the bad times. 

For investors, it pays a reliable dividend, which, if increased as expected this December, will mark the 49th consecutive year with a dividend boost. That will allow the company to join the elite list of Dividend Kings next year with one more increase. And shareholders should be confident that the dividend is safe. Soon after current CEO Leon Topalian took the position at the start of 2020, he said in an interview that the base dividend was safe under his watch. Investors should be able to take that to the bank and feel good about holding this name through both the ups and downs. 

Rows of bags containing spices.

Image source: Getty Images.

The spice is right

Spice and seasonings maker McCormick's strategy is a balance of consumer home brands and a commercial food service business. That mix gives shareholders a bit of a barbell approach within a single investment that can help navigate different economic swings. 

That result was on display during the pandemic when the company's 2020 full fiscal year consumer business grew 10.3% year over year, while the flavor solutions commercial segment struggled through closures and restrictions that led to a 2.4% drop in sales. The balanced approach resulted in overall net sales growth of 5.3% for the year. 

But the commercial side has bounced back as economic reopenings progress. Through the first nine months of fiscal 2021, flavor solutions sales are up 17.3% versus the prior year period, while the home cook-focused consumer business still managed to grow another 6.6%. That has led to net sales growth of 10.5%, and it allowed the company to boost its expected growth for the full year. 

McCormick has also increased its dividend payment by 10% in 2021, which is the 97th year of consecutive dividend payments by the company. With a respectable dividend yield of 1.66% and a business approach that provides balance during various economic scenarios, McCormick has proven to be an investment that holds up throughout various market conditions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.