The stock market is in correction territory, and the specter of stagflation (declining economic activity coupled with rising inflation) is suddenly on many people's minds.
While the economy hasn't collapsed yet, people are beginning to think it might not be long before it happens. And as investors, it would be prudent for us to consider the possibility as well. Protecting our portfolios before the next market crash is always a good strategy.
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That doesn't mean taking your money out of the market and hiding it under the mattress. There's no telling when a correction will turn into a bull market, and missing out on those crucial days can seriously affect your portfolio's performance.
JPMorgan found that missing just the market's 10 best days reduced your portfolio's annual returns by 60%; miss the 20 best days, and your head was barely above water. If you were sidelined during the 60 best days of the stock market, over three-quarters of your money evaporated.
That's why they say it's not about timing the market, but rather about your time in the market.
Yet it also doesn't mean taking a flier on every stock you come across. Willy-nilly stock picking can damage your returns just as fast. That's why I like the two stocks below. They are solid companies with long track records of performing in all kinds of markets. Even better, they pay a dividend, which can help smooth out the rough edges a market crash causes while juicing returns when things begin to look up again.
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1. Altria
Tobacco giant Altria Group (MO 0.49%) currently owns the traditional cigarette market and the emerging electronic cigarette market, despite the trouble both units have witnessed.
Its Marlboro brand retains a near-43% share of the U.S. market and has a dominating 9.5% share internationally. (Philip Morris International sells it outside of the U.S.) 9.5% may not sound like much, but it's about five times more popular than the next name on the list. Marlboro is the world's most valuable cigarette brand at more than $35 billion, some five times greater than British American Tobacco's runner-up brand Pall Mall at $7 billion.
Smoking is in a secular decline (though it did pick back up during the pandemic). Many smokers continue switching to e-cigs because of their perceived and actual benefits over smoking. Altria has a significant ownership stake in the top-selling e-cig brand, Juul Labs, and though it has fallen hard due to Food and Drug Administration attacks over its alleged contribution to teen vaping, it remains the leader with a 37% share compared to British American's Vuse, with almost 34%.
Although trade regulators have blocked Altria from selling Philip Morris' IQOS heated tobacco device in the U.S., Altria did just win a court decision over the Federal Trade Commission when a judge dismissed the agency's antitrust suit for Altria's investment in Juul.
Tobacco sales tend to rise in hard times. And because of the addictive nature of nicotine, Altria is able to maintain its profitability by raising prices whenever costs or new taxes are imposed, as its customers are willing to pay the higher price.
That's helped Altria to continue paying a rich dividend, which currently yields 7.1% annually. It has increased the payout every year for more than 50 years, making it a Dividend King. The tobacco stock is a steady performer that will provide the ballast your portfolio needs in times of turbulence.
Image source: Sysco.
2. Sysco
Don't confuse Sysco (SYY 0.27%) with Cisco Systems, the networking hardware giant. Sysco is the country's largest foodservice distributor, supplying restaurants, healthcare and educational facilities, lodging establishments, and others.
While supply chain bottlenecks have caused disruptions throughout the country, Sysco's vast network has largely mitigated any disruptions to its own operations, which it says led to "meaningful market share gains." It currently has 17% of a fragmented industry generating $300 billion of annual revenues.
Sysco has only a 30% share of its independent customers' wallet, a metric that measures a company's dollar-based importance to its existing customers. The company also serves less than 50% of independent restaurants in the U.S., so there is a significant growth potential for Sysco.
Its business is growing faster than the market as a whole, with total sales rising more than 41% in the latest quarter to $16.3 billion, making it one of the fastest-growing consumer-staples stocks. While profits also grew, they came in lighter than analyst expectations due to rampant inflation, but Sysco is effectively managing the impact.
Despite being over five times larger than the next biggest food distributor, US Foods Holding (USFD -0.50%), Sysco trades at lower valuations across several metrics, including price-to-earnings and how much Wall Street anticipates those earnings will grow versus its P/E ratio. Where analysts see US Foods' profits expanding 29% annually for the next five years, Sysco is forecast to grow earnings by 51% annually.
Sysco has paid a dividend every year since it went public in 1970. And after increasing it for 52 consecutive years, it also sits among the rarefied group of Dividend Kings.
