If 2022 is doing anything, it's teaching investors the stock market can also fall as well as rise.
- The Dow Jones Industrial Average is down 13% year to date, putting it in official correction territory.
- The broad market S&P 500 index is off 19%, but had dipped below the 20% threshold to be considered in a bear market.
- The tech-heavy Nasdaq 100 is languishing 27% below where it started the year, and was down as much as 31% last month.
While it's tempting to cash in your chips and run for the exits when the stock market looks like it's collapsing, history shows that severe corrections and bear markets are the best times to put your money to work.
Every single major downturn has been followed by a bull market. It's the adage of buy cheap, sell dear at work and is how you can generate transformational wealth for yourself and your family. But when everything looks cheap, how do you know what to buy?
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I'd argue dividend stocks are your friend in this situation (and most other situations, too, for that matter).
By definition, dividend stocks are profitable companies that are sharing their excess income with you. Sure, a business can have a rough patch and report losses occasionally. But by and large, companies paying dividends are proven businesses and often have been through numerous market cycles while their payouts endured.
According to a study by JPMorgan Chase's J.P. Morgan Asset Management, over a 40-year period between 1972 and 2012, dividend stocks returned an average of 9.5% annually, compared to just 1.6% for those that didn't pay dividends.
And considering the period of rampant inflation and rising interest rates we're in, dividends can help offset the debilitating effects those regressive conditions can inflict on portfolios. Tech stocks aren't often thought of as a place to look for dividends, but the pair of dividend payers below are among the best you can buy in July.
1. Apple
Apple's (AAPL -0.12%) dividend turned 10 years old this month, and while the quarterly payout of 92 cents per share is not the most overly generous (it currently yields 0.6% annually), it is an indication of a company committed to sharing its phenomenal success with investors.
It's not the first time the consumer electronics giant has paid a dividend; back in the 1990s, it paid (and then suspended) its dividend. But Apple today isn't the same company it was back then.
Nowadays, it has its finger on the pulse of consumer demand, with Morgan Stanley analyst Katy Huberty telling investors Apple's new product lineup is a picture of a company's "innovation engine at full throttle." From the iPhone 14 due out later this year to a new Macbook Pro, a refreshed iPad, and its Mac computer selling more than ever before, Apple remains at the pinnacle of its game.
It has over $50 billion in cash, equivalents, and short-term investments, and with a payout ratio of 14.3%, the dividend is not only safe, but also has plenty of room to grow.
2. Broadcom
Shares of Broadcom (AVGO 1.00%) are down sharply this year as the chipmaker battles concerns over supply chain disruptions to chip supplies and the potential for a recession to put a damper on consumer demand. Yet as the premier provider of wireless chips for smartphones, it should benefit from the ongoing upgrade cycle.
Right now Broadcom's business tilts heavily in favor of the semiconductor market, but its recent $61 billion bid for VMware (NYSE: VMW) would put its enterprise-class business infrastructure and data center operations on an equal footing. The buyout is certainly going to get close regulatory scrutiny, especially in Europe, but could provide a significant boost to future growth and its bottom line if approved.
Even if antitrust fears kill the deal, Broadcom is still on solid footing in the space as more companies continue to transition their data to the cloud. And its overall business isn't slowing down.
It ended 2021 with $14.9 billion in its backlog, with contracts extending nearly three years into the future, representing some $5.2 billion in annual recurring revenue. That makes its generous annual dividend of $16.40 per share, which yields 3.2%, one that investors can count on for years to come.
