Stock market corrections can be challenging for investors. The uncertainty makes it tough to know if your stocks will make it through. That's why it's a good idea to make sure you own companies built to endure tough times.
We asked some of our contributors for their favorite stocks to own when times gets tough. Here's why they believe Dominion Energy (D 2.93%), Nucor (NUE 0.26%), and NextEra Energy (NEE 1.13%) are great to hold, and even add to, when the stock market gets turbulent.
Boring on purpose
Reuben Gregg Brewer (Dominion Energy): Once, many years ago, Dominion Energy was a widely diversified energy company, with oil drilling assets, a midstream business, and a utility all under one roof. In an effort to simplify its business, and minimize risk, it has pared its portfolio down to just utilities. This is a regulated business, in which Dominion has to justify its rates to regulators and, in exchange, is granted a monopoly in the areas where it operates.
That makes Dominion a very reliable business, given that electricity is basically one of the most important things supporting modern life. Sure, demand tends to fall in times of economic weakness, but not that much. It is a boring, safe stock now that its multiyear transformation has been completed.
But what do investors get now? For starters, a fairly generous dividend yield of 3.3% or so. Although the dividend was cut in 2020, that was because of the sale of its midstream business to Berkshire Hathaway.
That sale allowed Dominion to solidify its balance sheet and set it up for more-reliable and robust dividend growth. The goal is to increase the dividend at an annual rate of 6% through 2025, backed by capital investment totaling around $32 billion. Because of the importance of electricity and the regulated nature of the utility sector, that spending, or at least most of it, will take place even if there's a bear market or a recession.
So you can focus on the dividends you are collecting instead of the market turbulence. And if Dominion's shares take a hit, too, you might even consider bulking up your position so you can collect even more of the growing dividend from what is now a utility-focused business.
Any drop in this stock's price is an opportunity
Neha Chamaria (Nucor): Nucor is the kind of stock that could take a big hit during a market downturn, but it's also one stock you'd not only want to hold throughout, but even buy while it's still cheap.
I'll give you two reasons: Nucor is one of the most well run and established players in an industry vital to the economy, so its stock price is also likely to bottom out quickly once the market bounces back. And in between, Nucor should help you earn passive income in the form of a regular dividend, which now yields about 1.7%.
In fact, Nucor doesn't just pay a regular dividend but is a Dividend Aristocrat that has increased its dividend every year for the last 49 years (leaving it one year away from Dividend King status). Last December, Nucor increased its dividend by a solid 23% as the company's profits and cash flows expanded -- 2021 was a record year for Nucor.
With spending on infrastructure on the rise under the Biden administration, demand for Nucor's steel products should remain strong. The company is already looking forward to a strong year, and there's no reason it won't be able to increase its dividend yet again this year. Given the backdrop, you'd want to consider any drop in Nucor's stock price in a market downturn as an opportunity to own a rock-solid infrastructure stock.
A safe haven when the market gets shaky
Matt DiLallo (NextEra Energy): NextEra Energy has one of the lowest-risk business models around. Its Florida-based electric utility generates relatively stable earnings by distributing energy to end-users under government-regulated rates. Meanwhile, its clean-energy infrastructure business produces steady cash flow by selling power to other utilities and large electricity consumers secured by long-term fixed-rate contracts.
Adding to NextEra Energy's overall stability is its financial profile. It has a conservative dividend payout ratio for a utility and has one of the strongest balance sheets in the sector. That gives it the financial flexibility to continue expanding its operations in Florida and its renewable energy business.
The company already has enough expansion-related investments to grow its earnings per share by 10% this year. Meanwhile, it sees earnings growth coming in at or near the upper end of its long-term target range of 6% to 8% annually through 2025. Powering that growth is the company's rising backlog of renewable energy development projects and investments to enhance its utility in Florida. This forecast supports the company's belief that it can increase its dividend by around a 10% annual rate through 2024.
Given the company's steady growth, NextEra is a great stock to hold when the market starts to nose-dive. While its share price might take a hit (which would be a good time to add shares), its earnings should continue heading higher even if the economy goes into recession. Add in its rock-solid 2%-plus dividend yield, and it's a safe haven amid the market's storm.