In a not-so-subtle way, the stock market has reminded Wall Street and investors over the past 4-1/2 months that stocks can go down, too. Since hitting their respective closing highs during the first week of January, the S&P 500 and Dow Jones Industrial Average are lower by 16.1% and 12.5%.
The short-term pain has been even more pronounced in the growth-dependent Nasdaq Composite (^IXIC -0.11%), which has fallen about 30% from peak-to-trough between its November 2021 high and its low of this past week. This substantive decline places the Nasdaq firmly in a bear market.
Although bear markets can be scary, they're historically the perfect time to do some shopping. After all, every major crash or correction throughout history has eventually been wiped away by a bull market rally.
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Further, there are measures investors can take to mitigate their downside during bear markets. For example, buying dividend stocks can be a genius move. Because dividend stocks are often profitable on a recurring basis and time-tested, they're just the type of businesses we'd expect to increase in value over time.
But not all dividend stocks are created equally. What follows are three extremely safe high-yield dividend stocks (i.e., yields of 4% or higher) you can confidently buy during the Nasdaq bear market.
Enterprise Products Partners: 7.13% yield
Two years ago, the oil and gas industry looked to be in crisis. The initial stage of the COVID-19 pandemic led to a historic drawdown in crude oil demand that briefly pushed oil futures to as low as negative $40 per barrel. Even though the price of oil subsequently rebounded, drilling and exploration companies took it on the chin.
However, this wasn't the case for midstream operator Enterprise Products Partners (EPD -0.59%). Midstream companies are the middlemen of the energy complex, and are responsible for moving oil and natural gas from the fields to the refineries, as well as storing oil, natural gas, and natural gas liquids. Most importantly, midstream providers rely on volume-based or fixed-fee contracts. This removes virtually all of the guesswork when it comes to forecasting annual operating cash flow and all but ensures they aren't exposed to volatile swings in oil and natural gas prices.
To add to the above, cash flow transparency is particularly important with regard to outlaying capital for infrastructure projects and acquisitions. Enterprise Products Partners has been able to expand the reach of its transmission pipeline and make acquisitions without hindering its profitability or quarterly distribution.
Speaking of distributions, at no point during the worst of the COVID-19 pandemic did this company's distribution coverage ratio (DCR) fall below 1.6. The DCR describes the amount of distributable cash flow generated by operations, relative to what was divvied out to shareholders. Any figure below 1 would imply an unsustainable payout. Enterprise Products Partners has increased its base annual payout in each of the past 23 years.
If you need one more reason to be excited about Enterprise Products Partners' future, take a look at where crude oil and natural gas prices are today. With these inputs at multidecade highs, drillers will be looking to boost production for years to come.
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Philip Morris International: 4.79% yield
A second exceptionally safe high-yield income stock investors can add during the Nasdaq bear market is tobacco giant Philip Morris International (PM 0.03%).
Tobacco stocks have faced all sorts of challenges for decades. In particular, developed markets have made advertising more stringent for tobacco companies. In the U.S., educational campaigns concerning the dangers of smoking or using tobacco products has reduced the adult smoking rate by roughly 70% since the mid-1960s. Yet in spite of these challenges, Philip Morris remains a rock-solid investment.
What makes this company so special is its geographic diversity. Spun off from Altria Group back in 2008, Philip Morris operates in more than 180 countries worldwide. If it's facing tougher regulations in a few developed countries, it can lean on growth from burgeoning middle classes in numerous emerging markets where smoking is still viewed as a luxury.
It's important not to overlook the incredible pricing power of tobacco stocks like Philip Morris, either. Due to nicotine being an addictive chemical, consumers typically treat tobacco products as a non-discretionary item. In other words, no matter how well or poorly the U.S. or global economy are performing, consumers are going to purchase their tobacco products.
This is also a company that's looking to the future. Philip Morris International's IQOS heated tobacco unit (HTU) controls 7.5% of global heated tobacco market share, on a pro forma basis, with HTU shipment volume rising 14.2% from the prior-year period during the first quarter.
Philip Morris International is paying out around 90% of its adjusted earnings as a dividend, as well as repurchasing its own stock (close to $1 billion in aggregate purchases over the past three quarters), which signals that value creation for investors is a priority for management.
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Verizon Communications: 5.31% yield
A third extremely safe passive income powerhouse you can confidently buy as the Nasdaq plunges is Verizon (VZ -1.23%). Verizon has a five-year monthly beta of just 0.37, which means it's only 37% as volatile as the broad-based S&P 500.
On one hand, the high-growth prospects for big telecom are long gone. But on the other hand, it means the major U.S. telecom companies are highly profitable and generating predictable cash flow. It's this predictability that makes it easy for Verizon to parse out an inflation-fighting 5.3% yield.
But just because Verizon's double-digit growth days are in the rearview mirror doesn't mean it's devoid of catalysts. Through the midpoint of the decade, the company should be able to generate modest organic growth from its wireless and broadband segments.
The single biggest catalyst for Verizon is the 5G revolution. It's been approximately 10 years since wireless download speeds were meaningfully improved. Although Verizon will be spending big bucks to upgrade its infrastructure, the reward should be a persistent device replacement cycle for businesses and consumers. The expectation is that data consumption will increase, which is a good thing for Verizon given that data is where the company generates some of its juiciest margins.
To add to the above point, keep in mind that smartphones and wireless access have effectively become a basic necessity good and service over time. Even if the U.S. economy were to dip into recession, it's highly unlikely that Verizon's wireless churn rate would meaningfully rise.
The other growth driver for Verizon is its broadband segment. Following the pricey acquisition of 5G mid-band spectrum last year, Verizon is attempting to reach 50 million households with at-home 5G services by the end of 2025. Broadband may not be the growth driver it once was, but it remains a steady producer of cash flow and can be used as a dangling carrot to encourage more consumers to bundle their services.
At a forward-year price-to-earnings ratio of about 9, Verizon represents an inexpensive and safe way to put your money to work in a volatile market.
