In bear markets, dividend stocks can be an excellent source of returns. That's because dividend-paying companies tend to be quality businesses with steady cash flows, which are highly valued during market downturns.
However, not all dividend-paying companies are the same. During tough times, some companies may be forced to cut dividends. Others maintain and even raise their dividends, making them trustworthy sources of passive income. Those with a history of increasing payouts can be reliable because they produce steady cash flows and have executive teams that are committed to managing the company's capital through various economic cycles. Here are four stellar dividend stocks you can trust in this bear market.
1. S&P Global's competitive advantage helped it raise dividends for decades
NYSE: SPGI
Key Data Points
S&P Global (SPGI 1.49%) is an essential part of fixed-income markets, and its steady business model has allowed it to raise its dividend for 49 consecutive years. It provides credit ratings for companies looking to issue debt. It also has a strong competitive advantage in that high barriers to entry make it difficult for new entrants to break into the credit rating market. The company and Moody's Corp. dominate the credit rating industry with a combined market share of 80%.
In 2022, fewer companies went to the debt markets to raise funds, which weighed on S&P Global's rating business. Through three quarters, the company's revenue from its ratings segment dropped 25%. Its other businesses have picked up the slack, including research and analytics. Overall, S&P Global's revenue grew 33% during the first three quarters of 2022 -- including its acquisition of IHS Markit, which bolstered its position as a top data provider and boosted its subscription-based revenue.
Its position as a top credit rater and consistent revenue through its data and analytics products give it a steady stream of cash flows, allowing it to raise its dividend for nearly five decades. Although its dividend yield is only 1%, its payout ratio of just 27% is a reassuring sign that S&P Global can continue to pay and raise its dividend -- making this a dividend stock you can trust through the bear market.
2. Cincinnati Financial has increased its dividend every year since 1960
NASDAQ: CINF
Key Data Points
Insurance companies can make excellent investments because of their reliable income. Quality insurers consistently generate positive cash flows and can quickly adapt to rising prices, making them solid investments when inflation is elevated. One top insurer with a history of increasing its dividend is Cincinnati Financial (CINF 1.29%).
For 62 consecutive years, Cincinnati Financial has raised its annual dividend -- a testament to its steady cash flows and stellar capital management. The company has navigated numerous recessionary periods, including the inflationary decade of the 1970s.
The insurer had a rough go of it from 2008 to 2011 when its combined ratio, a measure of profitability in the insurance industry, averaged 104%. In other words, it was writing policies that were not covering the cost of claims and expenses. However, exceptional capital management allowed the insurer to keep raising its dividend and keep its decades-long streak alive. Current Chief Executive Officer Steve Johnston took over in 2011 and helped right the ship, and its average annual combined ratio has been an industry-beating 95%.
With its 2.6% dividend yield and excellent capital management, this Dividend King is another solid income stock you can count on in the bear market.
3. United Bankshares is an overlooked income stock with a history of raising dividends
United Bankshares (UBSI 0.42%) is one under-the-radar stock that has increased its dividend for 48 consecutive years. The bank provides banking services through a network regional branches mostly in the mid-Atlantic, including Virginia, Washington, D.C., West Virginia, Ohio, Maryland, and the Carolinas.
What makes United Bankshares so consistent is its steady deposit growth, which it has achieved with a series of strategic acquisitions. Since 1982, it has acquired 33 regional banks and seamlessly integrated them into its business.
The bank is financially stable, with non-performing loans representing 0.37% of its total loans. Non-interest-bearing deposits also make up 41% of its total deposits, meaning that increases in interest rates help raise its interest income while interest expense increases at a slower rate. It has taken advantage of higher interest rates, and through the first nine months of 2022, its net interest income has grown at a solid 15.7%.
Its history of consistent dividend increases and a dividend yield of 3.8% make United Bankshares another reliable income stock worth considering for your portfolio.
4. Federal Realty Investment Trust's strategic locations help it weather tough economic times
NYSE: FRT
Key Data Points
Federal Realty Investment Trust (FRT 0.99%) is another stock with an impressive streak of raising dividends, hiking its payout for 55 consecutive years. The company operates as a real estate investment trust (REIT), and is legally required to pay out at least 90% of its taxable income to shareholders in dividends. For this reason, REITs can be an excellent source of passive income.
Federal Realty specializes in retail and mixed-use properties, including open-air shopping centers, offices, and apartments. What makes its business so steady is its highly selective investments in first-ring suburbs, or communities close to city centers in metropolitan markets with high barriers to entry.
It focuses on communities with dense populations and high average household incomes -- giving the business resilience during economic downturns. That's because high-income households can absorb the effects of inflation or recessions and ride out difficult economic times better than others. Its diverse portfolio includes tenants such as TJ Maxx, Home Depot, CVS, Kroger, and Whole Foods, and no single tenant makes up more than 2.8% of its annual base rent.
Federal Realty has boosted its dividend for more than five decades straight. Its dividend yield is 4.3%, making it a stellar stock you can trust to ride out the bear market.
