I own about 40 stocks, and some tend to get beat up in market sell-offs more than others. But for the most part, I don't worry much about the underlying businesses of my top holdings. Their stock prices can rise and fall, but I'm confident that the companies will continue to earn money, pay dividends, and execute on their growth strategies.
Here are two of my largest dividend stock holdings that I don't worry about at all during stock market sell-offs.
Growth and income no matter what
Realty Income (O +0.25%) is one of my largest and longest-held stock positions, and for good reason. Not only does the company have a long track record of market-beating total returns, it has achieved this with less volatility than the S&P 500 and has increased its income (and dividend) steadily over time, regardless of what the stock market and economy are doing.
NYSE: O
Key Data Points
If you aren't familiar with the company, Realty Income is a real estate investment trust that owns about 15,500 freestanding commercial properties in the U.S. and Europe, and most of them are occupied by retail or service businesses. There are two big reasons why the company has been such a steady compounder over the years:
- Realty Income's tenants are mainly in businesses that are recession-resistant or tough to disrupt with e-commerce, or both.
- Realty Income tenants sign long-term lease agreements with annual rent increases built in, and the tenants are responsible for taxes, insurance, and most maintenance costs.
The proof is in the performance. Realty Income has generated a 13.5% annualized total return over the 30 years since it listed on the NYSE, and it has increased its payout for 107 consecutive quarters, in a variety of economic climates. With a 5.2% yield and a stock price that's still more than 25% below the all-time highs, Realty Income could be worth a look for any long-term investor.
An essential business with a long-term focus
The stocks I worry about the least are those that sell things people need, and Markel (MKL 0.30%) is definitely on the list. At its core, Markel is an insurance company, providing specialty insurance and reinsurance products. There are plenty of applications of specialty insurance, and as a personal example, when I needed umbrella insurance to cover several rental properties, Markel is the company that wrote the policy.
Markel is also unique among insurance companies in that it invests its excess capital in two ways. First, it invests in common stocks and has a multibillion-dollar portfolio. A market sell-off gives the company the ability to put money to work at discounted prices. Markel also invests in earlier-stage businesses through its Markel Ventures business, and this has the potential to create needle-moving investment wins for the company.
Markel trades for about 17 times earnings estimates, which isn't exactly cheap, but is an attractive price to pay for this unique insurer. But if the stock were to fall during a sell-off, I'd love to add more shares on sale.
Your playbook during a market sell-off
When a stock market sell-off hits, the most important thing to avoid is making knee-jerk reactions and hitting the buy or sell buttons too quickly. I often tell people on days when the market is dropping sharply (or when it's soaring higher) that "today is a great day to do nothing." Trying to time the market is a losing battle, and reacting quickly to overall market movements rarely works out favorably.
When the dust settles and prices are still down, however, it can be a great time to pick up shares of excellent businesses at a discount. The two stocks I've discussed here are just a couple of examples that I'd love to add to if shares were to abruptly fall by 10% or more with no change in how the businesses themselves are performing.
