It’s been a wild start to 2022. Both the widely followed S&P 500 and iconic Dow Jones Industrial Average endured its biggest corrections in two years, while growth oriented Nasdaq Composite (^IXIC 0.29% ) briefly immersed in bear market territory, with a maximum fall of 22% from its historical maximum at the end of November.
Although the speed of downside moves in the market in general can be scary, especially when it comes to the more volatile Nasdaq Composite, these dips represent the perfect time to put your money to work. History shows that every correction and bear market has ultimately been erased by a bull market rally.
The simple question to ask yourself is, “Which stocks should I buy?”
Branded Income Stocks May Be Your Ticket to Long-Term Riches
While there is no shortage of investment strategies that can make you richer over time, dividend stocks They have a real knack for building wealth for investors.
Nine years ago, JP Morgan Asset Management, a division of the banking giant JPMorgan Chasepublished a report that examined and compared the performance of dividend-paying companies with non-dividend-paying companies over a four-decade period (1972-2012). The results showed that companies that pay dividends ran circles around non-dividend stocks at the rate of an average annual return of 9.5% compared to 1.6% of defaulters.
The size of this yearly outperformance of income stocks is impressive enough, but the bottom line is not. Companies that pay a regular dividend are almost always profitable on a recurring basis, proven over time, and have transparent prospects for long-term growth. In other words, dividend stocks may be boring, but they’re just the kind of companies we expect to appreciate in value over the long term.
If you’re looking to take advantage of the recent drop in the Nasdaq Composite, buying these high-yield, name-brand dividend stocks in the fall would be a smart move.
Walgreens Boots Alliance: 4% yield
The first well-known, high-yielding income stock that investors may regret not buying in the downturn is the drugstore chain. Walgreens Boots Alliance (WBA -2.03% ).
As a general rule, health actions they are often a defensive place to put your money to work during market downturns. Since we cannot control when we get sick or what ailments we develop, there is a fairly constant need for prescription drugs, medical devices, and health care services no matter how well or poorly the US economy and stock market perform.
The interesting thing about Walgreens is that it didn’t have this protection during the pandemic. As drugstore chains’ sales are driven by foot traffic at brick-and-mortar stores and clinics, the pandemic-induced closures hit Walgreens. But that short-term fade marks your chance to buy at an attractive price.
Walgreens Boots Alliance is currently in the midst of a multipoint change/growth plan that is emphasizing higher margins and customer loyalty. For example, the company reduced its annual operating expenses by more than $2 billion a full year ahead of schedule. Despite cutting costs, it is also spending aggressively on digitization initiatives. Although online sales represent a small percentage of Walgreens’ total revenue, it is an area with double-digit sustainable growth potential.
Beyond pulling levers to improve the company’s operating margin, Walgreens also partnered with and invested in VillageMD. The duo has already opened dozens of full-service health clinics located in Walgreens stores, with the goal of opening of 600 clinics in more than 30 US markets by the end of 2025. These medically staffed clinics are a differentiator that should drive repeat business and bolster Walgreens’ higher-margin pharmacy.
With a yield of 4% and a price-earnings ratio that would be below 10 by fiscal year 2022 (according to the Wall Street consensus), Walgreens Boots Alliance looks like a screaming buy.
Philip Morris International: 5.3% yield
Another high-yielding dividend brand stock you’ll be sorry you didn’t buy during the Nasdaq bear market fade is the tobacco giant. philip morris international ( PM 3.02% ). At 5.3%, Philip Morris is the highest performer on this list.
Although the tobacco industry Philip Morris is not the fast-growing beast it was decades ago, there is no shortage of safety valves to ensure that shareholders have a good chance of growing their money in the long run.
As an example, Philip Morris experienced a global decline in cigarette shipments (in millions of units) in 2021. Despite this decline, the company’s net sales increased by 9.4%, or 7.6% if focus only on the company’s adjusted organic year. year-on-year growth rate.
How can a company’s commodity shipment decline, yet sales growth is in the single digits? Look no further than the strong pricing power of Philip Morris. Because the nicotine found in tobacco cigarettes is addictive, tobacco stocks like Philip Morris rarely, if ever, have trouble passing on higher costs to consumers, especially when it comes to premium brands like Marlboro .
philip morris too benefits immensely from its geographical reach. The company operates in more than 180 markets around the world (the US is not one of these markets). This means that if certain developed markets clamp down on the tobacco industry, Philip Morris can still prosper thanks to the growth of a burgeoning middle class in emerging markets.
Don’t overlook the innovation of this company either. While tobacco cigarettes remain the company’s main sales and profit driver, the IQOS heated tobacco system is gaining momentum. Philip Morris estimates that there were more than 21 million IQOS users at the end of 2021, with shipments of heating tobacco units up nearly 25% year over year.
As I mentioned before, sometimes Boring businesses can be a beautiful thing for investors..
AT&T: 4.6% yield
The third high-performance brand company you’ll wish you didn’t buy in the fall is telecom stocks AT&T ( T 1.48% ).
Like tobacco stocks, the heyday of growth for major telcos has come and gone. But that’s not to say there aren’t growth catalysts on AT&T’s doorstep that could drive its stock price notably higher over time.
The most obvious catalyst for AT&T is the wireless infrastructure upgrade to 5G capability. It’s been about a decade since wireless download speeds improved significantly in the United States. While these upgrades will be costly and time consuming for AT&T, they will also encourage a multi-year consumer and business device replacement cycle. Given that AT&T’s wireless division generates its juiciest margins from data consumption, a large investment in 5G wireless infrastructure in the short term should lead to steadily growing wireless operating margins over time.
The other transformative movement is AT&T’s pending spin-off of WarnerMedia’s content arm, which will later merge with Discovery (DISC)( DISC 0.32% ) to create a new media entity (Warner Bros. Discovery). A recent update from AT&T notes that this spin-off should happen sometime this month (April).
The reason for this spin-off is twofold. First of all, it is a means to create value by creating a media entity that will have a broader range of content, as well as 94 million pro forma streaming customers. Warner Bros. Discovery should also save more than $3 billion annually in cost synergies.
Second, this spin-off allows AT&T to focus on its remaining telecommunications operations and reduce its debt. The company’s recently announced (but reduced) payout pegs its yield at a hefty 4.6%, but allows it to conserve capital to reduce its debt. Understand that AT&T’s performance could increase further after the spin-off is complete and AT&T’s stock price is adjusted to reflect the transfer of the WarnerMedia business to the new media entity.
Income investors won’t find many stocks more appealing after a Nasdaq bear market crash than AT&T, with just eight times Wall Street’s consensus earnings forecast for 2022.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We are motley! Questioning an investment thesis, even one of your own, helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.