It's been a wild start to 2022. Both the widely followed S&P 500 and iconic Dow Jones Industrial Average endured their biggest corrections in two years, while the growth-oriented Nasdaq Composite (^IXIC 1.11%) briefly dipped into bear market territory, with a peak decline of 22% from its November all-time closing high.
Though the velocity of downside moves in the broader market can be scary -- especially when it comes to the more volatile Nasdaq Composite -- these dips represent the perfect time to put your money to work. History shows that every single correction and bear market has eventually been wiped away by a bull market rally.
The simple question you have to ask yourself is, "Which stocks should I buy?"
Image source: Getty Images.
Brand-name income stocks can be your ticket to long-term riches
While there is no shortage of investing strategies that can make you richer over time, dividend stocks have a true knack for building investors' wealth.
Nine years ago, J.P. Morgan Asset Management, a division of banking giant JPMorgan Chase, released a report that examined and compared the performance of dividend-paying companies to non-dividend payers over a four-decade period (1972-2012). The results showed that the dividend-paying companies ran circles around the non-dividend stocks to the tune of a 9.5% average annual return versus 1.6% for the non-payers.
The sheer size of this annual outperformance for income stocks is pretty shocking, but the end result isn't. Companies that pay a regular dividend are almost always profitable on a recurring basis, time-tested, and have transparent long-term growth outlooks. In other words, dividend stocks might be boring, but they're just the type of companies we'd expect to increase in value over the long term.
If you're looking to take advantage of the recent decline in the Nasdaq Composite, buying these brand-name, high-yield dividend stocks on the dip would be a smart move.
Image source: Getty Images.
Walgreens Boots Alliance: 4% yield
The first high-yield, well-known income stock that investors may regret not buying on the dip is pharmacy chain Walgreens Boots Alliance (WBA -0.11%).
As a general rule, healthcare stocks are often a defensive place to put your money to work during market downturns. Since we can't control when we get sick or what ailment(s) we develop, there's a pretty steady need for prescription medicine, medical devices, and healthcare services no matter how well or poorly the U.S. economy and stock market are performing.
The interesting thing with Walgreens is that it didn't have this protection during the pandemic. Because pharmacy chains' sales are driven by foot traffic into brick-and-mortar stores and clinics, the pandemic-induced lockdowns walloped Walgreens. But that short-term swoon marks your opportunity to buy at an attractive price.
Walgreens Boots Alliance is currently in the midst of a multipoint turnaround/growth plan that's emphasizing higher margins and customer loyalty. For instance, the company reduced its annual operating expenses by more than $2 billion a full year ahead of schedule. Despite cutting costs, it's also spending aggressively on digitization initiatives. Even though online sales represent a small percentage of total revenue for Walgreens, it's an area with sustainable double-digit growth potential.
Beyond pulling levers to improve the company's operating margin, Walgreens has also partnered with, and invested in, VillageMD. The duo has already opened dozens of full-service health clinics co-located at Walgreens' stores, with the goal of opening 600 clinics in over 30 U.S. markets by the end of 2025. These physician-staffed clinics are a differentiator that should drive repeat business and bolster Walgreens' higher-margin pharmacy.
With a 4% yield and a price-to-earnings ratio that would be below 10 for fiscal 2022 (based on Wall Street's consensus), Walgreens Boots Alliance looks like a screaming buy.
Image source: Getty Images.
Philip Morris International: 5.3% yield
Another brand-name, high-yield dividend stock you'll regret not picking up during the Nasdaq bear market swoon is tobacco giant Philip Morris International (PM 0.31%). At 5.3%, Philip Morris sports the highest yield on this list.
Although the tobacco industry isn't the fast-growing beast it was decades ago, Philip Morris provides no shortage of safety valves to ensure shareholders have a good chance of growing their money over the long run.
As an example, Philip Morris saw a global decline in cigarette shipments (by millions of units) in 2021. Despite this decline, net sales for the company roared higher by 9.4%, or 7.6% if focused solely on the company's adjusted organic year-over-year growth rate.
How can a company's core product shipment decline, yet sales growth hit the high single-digits? Look no further than Philip Morris' strong pricing power. Because the nicotine found in tobacco cigarettes is addictive, tobacco stocks like Philip Morris rarely, if ever, have trouble passing along higher costs to consumers -- especially when it comes to premium brands like Marlboro.
Philip Morris also benefits immensely from its geographic reach. The company operates in more than 180 markets worldwide (the U.S. isn't one of these markets). This means that if certain developed markets are clamping down on the tobacco industry, Philip Morris can still thrive thanks to growth from the burgeoning middle class in emerging markets.
Don't overlook this company's innovation, either. Although tobacco cigarettes remain the company's bread-and-butter sales and profit driver, the IQOS heated tobacco system is gaining steam. Philip Morris estimates there were more than 21 million IQOS users at the end of 2021, with heated tobacco unit shipments climbing by almost 25% year over year.
As I alluded earlier, sometimes boring businesses can be a beautiful thing for investors.
Image source: Getty Images.
AT&T: 4.6% yield
The third high-yield, brand-name company you'll regret not buying on the dip is telecom stock AT&T (T -1.21%).
Similar to tobacco stocks, the growth heyday for major telecom companies has come and gone. But that doesn't mean there aren't growth catalysts on AT&T's doorstep that could drive its share price notably higher over time.
The most obvious catalyst for AT&T is the upgrading of wireless infrastructure to 5G capability. It's been roughly a decade since wireless download speeds were meaningfully improved in the United States. Though these upgrades will be costly and time-consuming for AT&T, they're also going to encourage a multiyear consumer and enterprise device replacement cycle. Since AT&T's wireless division generates its juiciest margins from data consumption, a big investment in 5G wireless infrastructure in the near term should result in steadily growing wireless operating margins over time.
The other transformative move is AT&T's pending spinoff of content arm WarnerMedia, which'll be subsequently merged with Discovery (DISCA) (DISCK) to create a new media entity (Warner Bros. Discovery). A recent update from AT&T notes that this spinoff should occur sometime this month (April).
The reason for this spinoff is twofold. First, it's a means to unlock value by creating a media entity that'll have a broader gamut of content, as well as 94 million pro forma streaming customers. Warner Bros. Discovery should also save more than $3 billion annually on cost synergies.
Second, this spinoff allows AT&T to focus on its remaining telecom operations and reduce its debt. The company's newly announced (but lowered) payout pegs its yield at a hearty 4.6%, yet allows it to conserve capital to whittle away its debt. Understand that AT&T's yield could head even higher after the spinoff is finalized and AT&T's share price adjusts to reflect the transfer of WarnerMedia's business to the new media entity.
Income investors aren't going to find many stocks more attractive following a Nasdaq bear market decline than AT&T, at just eight times Wall Street's consensus earnings forecast for 2022.
