When markets turn south, it is an excellent time for investors to examine their portfolio strategy carefully. A tried-and-true method for long-term profits is stocks that pay dividends. A steady dividend provides several advantages.
First, it gives the shareholder a steady income stream, even when the stock price dips. Investors can also take advantage of these dips in the stock's price by dollar-cost averaging through a dividend reinvestment plan (DRIP).
Dollar-cost averaging is a strategy of incremental buying over time. This allows us to take advantage of drops in the stock price and not rely on the impossible task of market timing. As they say, time in the market is better than timing the market. A DRIP plan will automatically reinvest the dividends back into the stock, providing a hands-off way to expand ownership interest over time.
With this in mind, let's look at some excellent candidates.
1. Verizon
Occasionally the market provides an opportunity too tempting not to consider. This may be the case with Verizon Communications (VZ +0.28%). Verizon is a global leader in communication technology. It is 20th on the Fortune 500 list, and because of the stock's recent fall, it is yielding well over 5%. Verizon had sales of $133.6 billion in 2021.
NYSE: VZ
Key Data Points
Verizon has struggled with growth recently, and the first quarter of 2022 was underwhelming. However, what Verizon lacks in growth, it makes up for with consistency. The annual results and dividends declared for the past three full years are below.
Data source: Verizon. Chart by author.
Verizon has a network-as-a-service (NaaS) strategy to leverage 5G technology in mobility, broadband, and the cloud to spur growth. Verizon's stock price has fallen considerably, offering investors the best dividend yield in many years. As shown below, the historically high yield coupled with a declining price-to-earnings (P/E) ratio makes Verizon a compelling consideration for dividend investors.
VZ Dividend Yield data by YCharts.
2. American Tower
Verizon and other mobile carriers couldn't provide services to customers without the infrastructure supplied by American Tower (AMT 1.80%). Real estate investment trust (REIT) American Tower is a global leader that provides wireless and broadcast towers through 221,000 sites. A REIT is an entity that enjoys certain tax advantages and must return 90% of its taxable income to shareholders through dividends.
The critical nature of this infrastructure and growing broadband needs give investors tremendous peace of mind that revenues will continue flowing. Broadband data demands increase as we do more with our devices, such as listening to music and streaming television.
Image source: Getty Images.
In addition, American Tower will benefit from the growth of the internet of things (IoT). IoT devices include appliances, home security systems, and autonomous farm equipment. Research suggests that connected devices will grow at a compound annual growth rate (CAGR) of 19% through 2027.
American Tower has grown adjusted funds from operations (AFFO) at a CAGR of 15% since 2011. This has enabled the company to pay a steadily rising dividend that now yields around 2.4%. The dividend has been increased for the past ten straight years, and the yield is historically high as shown below. American Tower stock can provide stable income during unstable market conditions.
AMT Dividend data by YCharts.
3. Texas Instruments
When many of us think of Texas Instruments (TXN +0.90%), we think of those fancy calculators we used back in school. But the company makes 90% of its revenue from manufacturing semiconductors, or "chips." The company boasts more than 100,000 global customers and earned $18.3 billion in revenue in 2021, a 27% increase over 2020. The stock is now trading at a P/E ratio not seen since the March 2020 crash, so this may be an opportune time for investors to consider the stock.
TXN PE Ratio data by YCharts
Texas Instruments has a sensational track record with cash management. Since 2004, free cash flow per share has grown at a CAGR of 12%. This has allowed the company to expand the dividend for 18 straight years and reduce the share count by 46% through stock buybacks. The current annualized dividend payment is $4.60 per share for a yield of 2.7%.
All three of these companies offer dependable income so investors can rest easy. Long-term investors should consider harnessing the market downswing using the DRIP strategy mentioned above.
