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Hold These Stocks If You're Worried About the Market Sell-Off

By Howard Smith – Jan 15, 2022 at 10:30AM

Key Points

  • Investors should stay focused on long-term results, especially when the market wavers.
  • Growing dividends are an important sign of a business's strength.
  • Dividend income can help soothe investors' anxiety during periods of stock market volatility.

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You might be surprised at how much this diversified mix of well-known companies has beaten the market.

People with a lot of their net worth in the stock market inevitably get uncomfortable when sell-offs occur. Such downturns on Wall Street trigger thoughts of money that has seemingly gone up in smoke -- not to mention second-guessing as investors wonder why they didn't sell before the drop and lock in those now-lost profits.

But no one can know for sure when a market correction is going to come, and they are an inevitable feature of investing. More importantly, as the old saying goes, "It's not about timing the market, it's about time in the market." Sell-offs like the one going on now may feel stressful, but if you'd held the stocks of these well-known companies for the last 20 years, you'd be able to relax even during market corrections. 

investor on laptop relaxed by the pool.

Image source: Getty Images.

Being comfortable and beating the market

Investors can feel comfortable holding Home Depot (HD -0.62%), Costco Wholesale (COST -0.41%), Walt Disney (DIS 1.64%), and Nucor (NUE 0.44%) for several reasons. Put together, they create a diversified basket of well-known and well-understood businesses in the retail, entertainment, and industrial sectors. 

But what might surprise you is just how much better the total returns (including dividends) from that basket have been than the S&P 500 index's results over the past 20 years. Have a look below.

HD Total Return Level Chart

Total Return Level data by YCharts

Growing dividends are a sign of strength

A key question for investors is how to remain patient. While sitting tight for years as an asset slowly gains in value might carry all the excitement of watching paint dry, shareholders can still enjoy a bit of added buzz each year when the companies raise their dividend payouts. Those boosts increase the shares' returns, of course, but they also should boost investors' confidence in the strength of the underlying businesses. 

HD Dividend Chart

Dividend data by YCharts

These companies don't all approach dividend payments with the same philosophy -- nor should they. For example, steel-making giant Nucor is in a cyclical industry. Previously, it committed itself only to a low base dividend that it paid through that cycle and then added supplemental dividend payments when business was thriving. But Nucor has transitioned from that approach to distributing a more robust base payout over the last dozen years as its business became strong enough to do so.

Disney suspended its payout in 2020 when the pandemic created enormous uncertainty and headwinds for some of its business segments. But over the years, it has grown its dividend significantly, and it would make sense for Disney to reinstate it at some point

Similar to Nucor's old approach, Costco rewards shareholders with large supplemental dividend payments at irregular intervals. It has made those extraordinary payouts four times in the past eight years -- even as management steadily increased the base dividend. COST Dividend Chart

COST Dividend data by YCharts

Income helps you sleep peacefully

While it's good to know that a company's cash flow is sufficient to continue increasing dividends, the actual payments are more than just reassuring. Investors can reinvest that money or use it for other purposes. At the same time, this income can't be taken for granted -- as Disney recently demonstrated. But with a portfolio of dividend payers that is appropriately diverse, investors should be at least somewhat hedged against unforeseen disruptions. 

And these companies provide steady dividend yields at their recent share prices

HD Dividend Yield Chart

Dividend Yield data by YCharts

The right portfolio is not just about being able to sleep at night. When investors can reduce the anxiety that comes with market downturns, they'll be less likely to panic during one. And selling due to fear is never a recipe for solid, long-term investment returns. A diverse mix of established businesses such as this one can help people keep their money invested through good times and bad -- and earn market-beating returns in the process. 

Howard Smith owns Home Depot, Nucor, and Walt Disney. The Motley Fool owns and recommends Costco Wholesale, Home Depot, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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