The stock market is having a tough 2022. This week, the S&P 500 index officially entered bear market territory, which means that it dropped at least 20% from its all-time high.
With inflation running at a four-decade high and more interest rate increases on the Federal Reserve's docket, the market could struggle for some time. But investors who have a long-term focus don't need to be concerned with market dynamics over the short or medium terms, because they can count on the market rising over the long haul.
Among the best stocks to consider buying now are dividend-paying shares of well-established, profitable companies that sell products and services customers need during both good and challenging economic times, including during recessions. Two such companies are U.S. water and wastewater utility giant American Water Works (AWK 1.00%) and electric utility powerhouse NextEra Energy (NEE 0.45%).
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Two of the best dividend stocks to buy and hold for the long term
|
Company |
Market Cap |
Dividend Yield |
Wall Street's Projected Annualized EPS Growth Over Next 5 Years |
Stock's 10-Year Total Return |
|---|---|---|---|---|
|
American Water Works |
$23.8 billion |
2% |
8.3% |
378% |
|
NextEra Energy |
$139 billion |
2.4% |
8.9% |
449% |
|
S&P 500 |
N/A |
1.47% |
N/A |
232% |
Data sources: Yahoo! Finance and YCharts. Data as of June 16, 2022. EPS = earnings per share.
American Water Works
American Water Works is the largest and most geographically diverse U.S. water and wastewater utility. It provides regulated utility services in 14 states and has a market-based business that provides services on military bases throughout the country.
The company was founded in 1886 and is poised to thrive well into the future. The beauty of regulated water utilities for investors is that they provide a product that is essential and has no substitutes, and they're legal monopolies, so competition isn't a concern.
American Water Works' catalysts for growth include industry consolidation, the need for water system infrastructure upgrades throughout much of the country, and climate-change-induced rising temperatures.
The company has raised its dividend every year since it went public in 2008. Moreover, through 2026, management expects dividend growth to average at the high end of the 7% to 10% range.
NextEra Energy
NextEra Energy owns the largest regulated electric utility in the United States, Florida Power & Light Company, which operates in its namesake state. It also owns NextEra Energy Resources, which is the world's largest generator of renewable energy from the wind and sun and a global leader in battery storage.
Like American Water Works, NextEra is a time-tested company with deep roots. Founded in 1925, it should continue to grow along with the growth of renewable energy and Florida's population.
NextEra has raised its dividend for 28 consecutive years. In February, the company not only announced an approximately 10% dividend increase, but also said that it expects to hike its dividend roughly 10% a year through at least 2024.
Dollar-cost averaging is your friend
Dollar-cost averaging involves investing the same dollar amount at some set interval, such as monthly or quarterly. Dollar-cost averaging your way into your full position (or better yet, indefinitely, if possible) will prevent you from buying your entire stake in a stock right before a significant drop.
