That bear you see in your side-view mirror is closer than it appears. You look at the gas tank, and it's almost empty due to inflation. As the S&P 500 hits a 20% decline, the thought of being in the clutches of the first bear market since the COVID-19 pandemic's onset in March 2020 is a reality. What to do now?
For long-term investors who have the ability to see the forest through the trees, there are a few paths to take to minimize risk and create some portfolio stability. One is to latch onto companies that have been consistently increasing annual dividends for over 50 years -- the Dividend Kings -- providing passive income that can act as cover during a severely depressed market and benefit investors for the long haul.
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1. Becton, Dickinson
Becton, Dickinson (BDX -0.23%) has made its name in medical supplies, intervention devices, and life sciences by bringing innovative products to market, including the first insulin syringe and the first blood collection tube. Now the company is expanding on the latter through a collaboration with Babson Diagnostics, announced earlier this month.
New developments in a blood collection and testing system are expected to reduce the number of blood samples necessary for accurate analysis. In addition, this is a less invasive method and an easy-to-use approach, making it available for at-home use through retail settings. The company expects a more readily available and less-invasive option will appeal to patients who may require routine monitoring of care. It will also make it easier to get more anxious patients to increase monitoring through self-management. That, in turn, could easily translate into higher revenue for the company in the years to come.
BD has been a solid long-haul investment over the past 10 years, resulting in a share price growth of 245%. Along with stock price gains, investors have been rewarded with increased annual dividends for 50 consecutive years, making BD a newly anointed Dividend King.
Rather than bailing out of this teetering bear market, investors should think long-term about BD. You could be rewarded with passive income brought on by those dividends, which can help stabilize a portfolio and provide some passive income to help cover those inflationary costs. BD currently pays an annual dividend of $3.48 per share at a 1.4% yield.
2. Abbott Laboratories
Abbott Laboratories (ABT -0.65%) has been in the news lately, but not for the reasons investors want. A recent recall and the closing of an Abbott plant in Michigan have helped lead to a shortage of baby formula, gaining the company negative press, leaving families desperate for options, and making some investors wonder what this could mean for Abbott's future.
The short-term good news for investors is that help is on the way in the form of 1.5 million bottles of Nestle's formula shipped under the direction of President Biden. Nestle formula won't help Abbott make money, but it should partially resolve the current issue at hand -- empty shelves -- and take some of the pressure off Abbott.
Abbott's negative news sent shares lower, but as stores restock and poor press fades, investors will likely take advantage of the stock price dip as things eventually rebound.
The FDA chief has mentioned that the plant may open as soon as this week. And although Abbott's formula would not find its way to shelves for up to a month or two, investors will likely see that news as positive, meaning the company may only take a minor shave in revenue.
Plus, Abbott isn't a one-trick pony. Its diagnostics and medical device segments are the biggest revenue drivers, which grew organically by 35% and 12%, respectively, during the first quarter on a year-over-year comparison. Combined, the segments made up 74% of Q1 sales, compared to only 16% for nutrition, under which baby formula falls.
This company has seen revenue climb 45% since 2018 and expects to see high-single-digit growth in 2022 in three of its four segments. Its stock and dividend increases have also gone along for the ride, up 87% and 67%, respectively, since 2018. As a Dividend King with a payout ratio of 43%, there is reason to believe the company will sustain those payouts for years to come.
3. Target
Target (TGT -0.70%) is facing a problem of its own, though not so much a public relations issue. In its latest earnings call, Chief Growth Officer Christina Hennington noted that inflation has led to consumers focusing spend on necessities such as groceries.
There has been a shift away from higher-margin goods and services. Inventories have built up, leading to discounted sales and sliced margins. This resulted in a first-quarter operating margin of 5.3%, which stood well below the company's expectations. Comparable store sales grew 3% on a year-over-year basis, which also looks negative from an investor's perspective after two consecutive years of double-digit growth, including 18% last year.
But as the market fights through inflation, Target has an opportunity to further evaluate the purchasing needs of consumers in this post-pandemic economy. In the first quarter, it saw a 4% growth in foot traffic. Although spending habits may have changed -- to deal with inflation -- consumers are still visiting Target stores. This should help the company down the road, meaning the stock is still a buy for the long term.
As the company digests the shift in consumer spending and inventory works itself out, the annual dividend paid to investors continues to climb as it has for five decades. The most recent increase was 32%, to $0.90 per share. But before you get too excited about that raise, it's worth noting that the previous eight years saw an average annual increase of 3.6%.
Be that as it may, it's not like Target is the only company fighting the impact of inflation. Primary retail competitors like Walmart are also dealing with the pain, claiming its own 3% comparable-store sales growth year over year for the quarter, after 6% growth last year in Q1 and an 18% growth across the previous two years' first quarters.
Target's revenue and earnings growth, albeit small, should give investors the confidence to be patient. Meanwhile, a 38% nosedive in the stock price since April 20, along with a raised dividend, could be an opportunity to pad your portfolio and makes Target a Dividend King worth buying.
Before you know it, the bear market will have come and gone. All three of these companies provide an opportunity to take the right path toward gains for the long haul.
