Stocks have plunged into another bear market this year after tumbling more than 20% from their recent peak. Things could get worse before they get better, which might cause some companies to run into financial issues. But while it's not clear when this bear market will end, it undoubtedly will follow the pattern of its predecessors and eventually give way to a new bull market.
Because of that, it's better to shift your focus from the current bear market to companies that have proved their ability to continue growing no matter the market condition. Three stocks that have delivered decades of steady dividend growth are Stanley Black & Decker (SWK 0.37%), Emerson Electric (EMR -1.34%), and Nucor (NUE -1.77%). Here's why our contributors believe these Dividend Aristocrats are great stocks to consider buying amid the current bear market.
Focus on the long term
Reuben Gregg Brewer (Stanley Black & Decker): Most people consider things like food to be necessities, but look at Stanley Black & Decker's product portfolio, and it is filled with tools that are vital for getting things done. Good luck building a house without a saw or a hammer. Which helps to explain why the company's business has been so resilient over time. And why it is a Dividend King with 55 consecutive annual dividend increases.
That said, it isn't always easy to hang on to because this industrial stock has a short-cycle heavy business. In this case, it means a lot of Stanley's tools are sold to consumers via hardware stores. Consumers tend to react quickly to economic downturns while industrial and professional customers tend to be a bit more resilient. Retail sales have taken a notable hit so far in 2022, as the economy teeters on the brink of a recession, which is one of the reasons management has drastically lowered its full-year guidance.
But the dividend was increased in September, suggesting that the company is confident it can work through this rough patch like it has with so many economic and market downturns before. Meanwhile, Wall Street doesn't appear to be giving the company the benefit of the doubt, cutting the stock price in half and pushing the dividend yield up to a historically high 3.8%.
If you can handle taking a contrarian stance, this reliable dividend payer looks like a bear market buying opportunity. Notably, short-cycle businesses tend to recover just as quickly as they falter, so the high yield here could be pretty short-lived.
65 years and counting
Matt DiLallo (Emerson Electric): Emerson Electric has been a pillar of durability over the years. The automation and climate-solutions company has steadily grown its revenue, earnings, and cash flow through numerous economic cycles and bear markets. That's evident in the dividend, which it has increased for an impressive 65 straight years. That qualifies it as not only a Dividend Aristocrat but also puts it in the even more elite class of Dividend Kings, which have delivered 50 years or more of dividend growth.
While Emerson Electric isn't immune to bear markets (shares have declined by more than 15% from their recent peak), it has the financial strength and business mix to weather those storms better than many other companies. That's due to its focus on automation, which helps save companies money. Because of that, demand for its services holds up relatively well during an economic downturn.
The company complements its resilient business with a top-notch financial profile. Emerson Electric has A-rated credit, giving it tremendous financial flexibility. Meanwhile, it produces relatively steady cash flow. That gives it the funds to reinvest in its business to drive growth, including a long history of making accretive acquisitions.
It also has an excellent track record of returning capital to shareholders through its growing dividend and a meaningful share repurchase program that has steadily reduced its outstanding shares.
With the current bear market weighing on shares, Emerson Electric's dividend yield has risen to 2.7%. Because of that, income-seeking investors can lock in a higher yield on this rock-solid dividend growth stock.
This dividend just keeps growing
Neha Chamaria (Nucor): Nucor is the kind of stock that tends to get hammered during bear markets, especially if they're driven by fears of an economic slowdown. The company makes steel, and a slowdown hurts manufacturing activity and the demand for its base product. Yet it is also the kind of stock that keeps paying dividends regardless of how the economy or the stock markets are faring. In fact, it has increased its dividend every year over the past 49 years.
Such a remarkable track record from a cyclical stock wouldn't be possible had Nucor not prioritized investments in growth and balance-sheet strength ahead of dividends and share repurchases. While growth initiatives add to its cash flows, a focus on financial fortitude ensures that the steel stock can service debt even in tough times and still have enough cash to return to shareholders in the form of dividends.
In fact, I would expect a pretty big dividend hike coming toward the end of this year even in a bear market. The reason is its earnings growth: Nucor appears on track to deliver record numbers for 2022 and expects to pay out almost 40% of its earnings in dividends. To give you an idea of how big the dividend raise could be, consider that in 2021 (which was also a record earnings year), the company increased its annual dividend by a solid 23%.
Even if Nucor's dividend yield of 1.7% doesn't appeal much to you, its dividends have grown at a much faster pace in recent years, and that dividend growth has added significantly to the stock's total returns. It's one trend that could continue no matter what the stock market does.